This is a result of the legal protections LLCs and LPs afford for shareholders. Specifically, they protect members (LLCs) or partners (LPs) from personal liability in the event the entity is sued. The creation of the SPV entity requires Legal Expertise.
The LLC is currently the most popular choice among SPV investment organizers. This is because in addition to its personal liability protections, it is the simplest, most flexible and cost-effective way to structure an SPV.
Though an LP structure offers the same legal protection from personal liability as an LLC, it is also slightly less flexible and more expensive than its LLC counterpoint.
Whether investors choose the LLC or LP structure, both entities are state-specific--i.e. each U.S. state has its own requirements and features for SPVs (and other business and investment entities, from venture funds to corporations). Most SPV organizers choose to become a Delaware-registered entity because this is widely considered the world’s most flexible and business-friendly type of business/investment entity. Though many states have--not surprisingly--mirrored Delaware’s flexibility and other advantages, Delaware has maintained its reputation and standing as the most advantageous place to register an entity.
In most cases, Assure recommends using a Master Series LLC structure. This is an LLC without a predetermined shape or structure. The Delaware Master LLC can act as an umbrella for as many divisions (i.e. “series”) as you choose to add. There are currently no limits to the number of subsidiary units investors can add under the banner of their SPV’s Delaware Master LLC. Each subsidiary enjoys its own limited liability protection, can open its own bank account and enter into its own contracts, including separate tax provisions.
If you have any questions about this step, feel free to reach out to the Assure team. As part of our comprehensive and affordable SPV service, Assure manages this and every other step throughout the entity’s lifecycle.
Now that the SPV entity has been created, your next step will be to HIRE A REGISTERED AGENT.