Here is a conversation between Raj Shah and Rishi Dedhia, Co-Founders of Invest In Pre-leased, and Krupa Joisar, Founder of KJA, regarding the comparison between Private Limited and LLP entities. Krupa, a seasoned company secretary and member of the Institute of Company Secretaries of India, shares her insights based on her extensive experience in corporate law and hands-on involvement in the construction industry.
Raj: As all fractional ownership companies keep saying, we are creating a SPV. So, Krupa, treat us as layman and please explain to us What a SPV is?
Krupa: Sure, Raj. So before reading this question, I would like to give me certain disclaimers. Viewers, please consider this video for educational and so, for awareness purpose only. So before investing or taking any decision, please consult your profession, maybe lawyer or a CS and take a professional guidance and then only jump into investment decisions.
So, Raj answering your question, what is a SPV. As the name suggests, it’s a Special Purpose Vehicle. It is an entity formed for a specific purpose. For example, any builder or a real estate tycoon incorporates any entity, which could be an LLP or a private limited company for accomplishing or completing one of their projects.
Raj: Since we are talking in context of fractional real estate ownership, if they’re creating a SPV for the purpose of owning the real estate, and managing it, is there any other activity permitted in that? And how does an investor come to know that, it is a Special Purpose Vehicle and nothing beyond this will be carried out.
Krupa: Sure. for any entity could be a private limited company or LL. Let’s first come to private limited company. When a company is incorporated, it has to abide by a memorandum of association. In memorandum of association, there is a specific clause named as object clause where it is specifically mentioned that what the company will do or is allowed to do.
By reading the memorandum, an investor or any person from general public can understand, why this company is formed and what this company will do.
Similarly, in case of LLP, it is more regulated via an LLP agreement. In LLP agreement, specifically the main objects are mentioned. Therefore, while by going through the LLP agreement, a person can come to know why this LLP has been formed.
What is an SPV in fractional real estate ownership?
