What does Specific Purpose Society mean?

A Specific Purpose Society (SPE) is a business model similar to joint ventures in the United States. It is frequently utilized for engineering projects to reduce financial risks by bringing together investors.

In this article, we will discuss the concept of SPE and its key features. Keep reading.

What does SPE stand for?

A Specific Purpose Society is a type of business model where a new company is established with a specific goal and a set lifespan.

SPE can also be seen as a type of group business venture that is often utilized to distribute the financial risk involved in the project.

This business model promotes partnerships and collaboration among individuals interested in exploring new business opportunities and sharing financial risks and costs.

The legal basis is found in Complementary Law 128/2008, which brought about various modifications to Complementary Law 123/06 (General Law of Micro and Small Enterprises), particularly in Article 56. The changes involved the removal of the Simple Consortium and the introduction of the Specific Purpose Society for Micro and Small Enterprises, which focuses solely on safeguarding the economic interests of microenterprises and small businesses.

SPE bases its forecast on the single paragraph of Article 981 of the Civil Code.

People who are obliged to contribute goods or services to an economic activity and share the outcomes with each other are described in Article 981.

The activity may be limited to carrying out one or more specific operations.

SPE’s business activity can be limited to one or more ventures. It can also be used for legal recovery by transferring the debtor’s assets to settle debts.

How does the process of SPE function?

Many SPEs are considered to be a part of parallel banking or non-bank financial intermediation, as commonly known globally.

The business model of SPE focuses on a particular enterprise, such as real estate developments, to limit potential debts and liabilities, providing increased security to partners and participants.

The Specific Purpose Society enables people to participate as partners in real estate ventures by making a small financial investment, making it more accessible for non-expert investors.

The investor involved in this transaction of “securitization of loans” or acquiring securities backed by loans receives identical cash flows and faces the same underlying risks associated with these cash flows.

SPE is responsible for fulfilling tax obligations, including selecting a tax model (whether based on assumed profit or actual profit) and issuing tax notes for ICMS collection. Additionally, SPE has the flexibility to apply varied tax treatments to its assets and business operations.

Setting up an SPE is justified by:

• Keep a collection of assets as security for a loan.
• Transfer the financial risks linked to owning a portfolio of assets to external parties or investors.
• Capitalizing on beneficial tax conditions.
• Generate liquidity for an organization by making it easier to obtain funds.

The main aim of the SPE is to offer protection from liability to the owner of the SPE and its investors.

Advantages of the SPE business model.

Specific Purpose Societies have been commonly utilized over the past three decades, simplifying processes.

• Securitization is the process of transforming assets into securities.
• Funding.
• Risk distribution;
• The rise in funds, among other things.

Companies would have to endanger the entire organization to accomplish the goals stated above without SPE.

Why choose SPE?

SPEs, when organized effectively, can assist investors in reaching their objectives by lowering costs through a single point of contact and providing a guaranteed financial return expectation to potential investors.

There are various reasons for choosing an SPE business model, such as:

• Investors are safeguarded from financial risks, especially in the case of a significant project, as there is assurance that the project will be finished even if the company goes bankrupt.
• Different layers of heritage infusion are distinguished in complex financing operations.
• Enables you to oversee reducing costs, handling administrative tasks, managing budgets and procurement expenses, and minimizing reliance on intermediaries.
• It possesses assets and permissions more conveniently along with their related rights.
• Simplifies participation in a public-private partnership utilizing a project financing framework.

SPE offers a notable improvement in legal security for parties involved in investments, making it a good choice for investors looking to diversify their real estate portfolio despite not completely eliminating risks.

SPE and the Declaration of Heritage

The Affestation Patrimony plays a crucial role in safeguarding investors by providing assurance in the event of financial challenges faced by the entrepreneur of a bankrupt enterprise.

Law No 10,931/2004 altered the course of the real estate sector and investments within it by ensuring that real estate units will be constructed and delivered to buyers, including SPE and developers, even in cases of financial challenges faced by the incorporator.

When financial institutions use the SPE model, such as in collective investment companies like Real Estate Crowdfunding, the Heritage Attestation provides increased security for partners and potential investors. This is because funds assigned to it will be kept separate in the event of bankruptcy by the construction or corporate company involved.

A Special Purpose Entity (SPE) provides investors with legal assurance, as the Affestation Heritage law guarantees property owners will receive their properties.

Summary

SPE is commonly utilized in real estate projects to reduce financial risks and is adaptable for smaller joint ventures, with its social objective tied to the specific market cycle it operates in.

By choosing to use a Special Purpose Entity (SPE), individuals can experience increased peace of mind and security as the risks are associated with the project. Furthermore, the accountability of SPE partners for the completion of their task is restricted to the SPE.

When considering safe investments, it’s crucial to research and educate yourself before engaging in real estate ventures.