Special Purpose Vehicle (SPV) FP

The Special Purpose Vehicle (SPV) has gained significant popularity in contemporary finance.It is a legal entity established for a particular objective, often focusing on a single project or transaction, and serves to separate the risk associated with the underlying assets from the sponsor’s financial statements.

The role of an SPV varies based on its intended purpose. One of its primary functions is risk management and mitigation; by isolating the risk of the underlying assets from the sponsor’s balance sheet, an SPV helps reduce the sponsor’s risk exposure. Another crucial role of an SPV is asset securitization, which involves aggregating assets and issuing securities that are backed by these assets.

Transferring assets via an SPV entails moving assets to a specially created legal entity designed for a specific purpose, typically a single project or transaction. This process involves identifying the assets, assessing their value, and transferring them to the SPV. The benefits of transferring assets through an SPV include reduced risk exposure, improved liquidity, and potential tax advantages. However, legal considerations for this transfer include ensuring regulatory compliance, fulfilling contractual obligations, and addressing tax implications.

In Bangladesh, several types of Special Purpose Vehicles (SPVs) could be suitable depending on the economic and developmental needs of the country. Here are a few types of SPVs that could potentially thrive in Bangladesh:

1. Infrastructure Development SPVs: Bangladesh has a growing need for infrastructure development, including roads, bridges, ports, and power plants. SPVs focused on financing, constructing, and managing infrastructure projects could play a significant role in the country’s development.
2. Renewable Energy SPVs: Given Bangladesh’s focus on renewable energy sources like solar and wind power, SPVs specializing in developing and operating renewable energy projects could find ample opportunities. These SPVs could attract foreign investment and contribute to Bangladesh’s goal of increasing its renewable energy capacity.
3. Export Processing Zone (EPZ) SPVs: Bangladesh has several EPZs aimed at promoting export-oriented industries. SPVs focused on managing and developing EPZs, attracting foreign investors, and facilitating export-oriented businesses could thrive in this environment.
4. Real Estate Development SPVs: Rapid urbanization in cities like Dhaka and Chittagong presents opportunities for real estate development SPVs. These entities could specialize in developing residential, commercial, and mixed-use properties to meet the growing demand.
5. Agribusiness SPVs: Bangladesh has a significant agricultural sector. SPVs focused on modernizing agriculture, introducing new technologies, and improving supply chain efficiencies could enhance productivity and profitability in the sector.
6. Microfinance and SME Financing SPVs: With a large number of micro, small, and medium enterprises (SMEs) in Bangladesh, SPVs specializing in providing financing and support services to these enterprises could help spur economic growth and create employment opportunities.
7. Healthcare and Education SPVs: SPVs focusing on healthcare infrastructure development, medical equipment procurement, and education sector investments could address critical needs in these essential services.

SPVs are valuable instruments for managing assets and liabilities, offering benefits such as effective risk management and tax efficiency. Nonetheless, it is crucial to consider the legal implications of employing an SPV and ensure compliance with all regulatory requirements

The formation of an SPV begins with establishing its legal structure. Depending on its intended purpose and jurisdiction, an SPV can be set up as a company, trust, joint venture or partnership. In Bangladesh, the formation and operation of private or public limited liability company are regulated by the Companies Act 1994. To form an limited liability SPV, one must register with the Registrar of Joint Stock Companies and Firms. An SPV could commence its business as soon as it has completed its registration/incorporation process with the RJSC provided the SPV has applied and obtained other relevant licenses e.g., trade license, VAT registration, fire safety certificates and others from the respective departments. ABC Partners could also support you with the applications and registrations for these certificates and licenses.

How to incorporate/ register a Special Purpose Vehicle (SPV)

Setting up a Special Purpose Vehicle (SPV) in Bangladesh involves several legal and procedural steps. Here’s a general outline of the process and how ABC Partners can assist you:

Step 1: Conceptualization and Planning

• Define the Purpose: Determine the specific purpose of the SPV, such as for a joint venture, project financing, or asset management.

• Legal Structure: Decide on the legal form of the SPV, such as a private limited company, public limited company, trust, joint venture, partnership depending on the project’s scale and objectives.

ABC Partners will provide consultation on the most suitable legal structure for your SPV based on your business objectives and regulatory requirements in Bangladesh. ABC Partners will also advise on the type of entity that best fits your needs.

Step 2: Registration and Incorporation

• Name Clearance: Apply for name clearance from the Registrar of Joint Stock Companies and Firms (RJSC) to ensure the chosen name is available and complies with regulations. ABC Partners will assist you with the name clearance application.
• Drafting Documents: Prepare the necessary documents, including the Memorandum of Association (MOA) and Articles of Association (AOA), statutory declaration, and other required forms. ABC Partners will draft the MOA and AOA tailored to the specific requirements of the SPV. Additionally, ABC Partners can support you in preparing all required documents and forms as per your requirements and in compliance with the relevant laws of Bangladesh. ABC Partners will also draft shareholder agreements, if applicable, to outline the rights and responsibilities of shareholders.
• Registration: Submit the incorporation documents to the RJSC along with the required fees. Upon approval, the SPV will be registered and issued a Certificate of Incorporation. ABC Partners will prepare and file all necessary documents for the incorporation of the SPV with the RJSC and ensure compliance with all local laws and regulations during the incorporation process.

Step 3: Compliance and Regulatory Approvals

After the SPV is registered with the RJSC, a few more approvals need to be obtained from various authorities. ABC Partners will assist you in obtaining the necessary approvals and licenses from regulatory authorities, including:

• Tax Registration: SPVs are subject to corporate tax under the Income Tax Ordinance, 1984. Therefore, you need to obtain a Tax Identification Number (TIN) and register for Value Added Tax (VAT) with the National Board of Revenue (NBR). Tax rates, incentives, and exemptions may vary based on the industry and nature of operations.
• Foreign Investment Approval: If the SPV involves foreign investment, regulations under the Foreign Private Investment (Promotion and Protection) Act, 1980, and subsequent amendments must be complied with. For foreign-owned SPVs, obtain approval from the Bangladesh Investment Development Authority (BIDA) or the relevant ministry (if applicable).
• Sector-Specific Approvals: Depending on the nature of the SPV’s activities (e.g., energy, infrastructure), ABC Partners will assist in obtaining additional sector-specific approvals from relevant authorities.
• Regulatory Compliance: Assist in obtaining necessary approvals and licenses from regulatory authorities, if required for your specific industry or activities.
• Trade License : After successfully incorporating or registering a company in Bangladesh, obtaining a trade license is a necessary step to operate your business legally. The process for obtaining a trade license is governed by the Local Government (City Corporation) Act 2009 and the Municipal Taxation Rules, 1986. You can acquire a trade license from the City Corporation Office or the City Council Office in your district. Select the appropriate application form based on the location of your business to ensure you meet local requirements. The process for obtaining a trade license varies depending on whether your business is manufacturing or commercial. Be sure to review the specific checklist and requirements applicable to your business type.
• VAT (value added tax) Certificate : The VAT certificate is essential for businesses to comply with VAT regulations and to engage in VAT-related activities. To obtain a VAT (Value Added Tax) certificate in Bangladesh, you need to apply to the National Board of Revenue (NBR) by using the NBR’s online VAT registration portal along with the required documents.

Step 4: Operational Considerations

• Bank Account: Open a bank account in the name of the SPV to manage finances and transactions related to the project. If a foreign person is included as a shareholder, the process becomes somewhat more complicated. The foreign investor or shareholder must initially open a temporary bank account where they remit the funds. The bank can be any scheduled bank in Bangladesh, and the investor must remit the money from outside the country once the account is activated. After receiving the funds, the bank will issue an Encashment Certificate, which needs to be uploaded on the RJSC website along with the Memorandum of Association (MOA), Articles of Association (AOA), and other relevant documents. By submitting all of these documents, the applicant or the new owner of the company can then apply for other licenses and certificates, such as a Trade License, Tax ;l.;;;Certificates, VAT registration certificates, and more. ABC Partners will assist with opening bank accounts and setting up the necessary financial infrastructure for the SPV. Please click here to follow ABC Partners’ quick guide on how to procure all these documents.
• Office and Staffing: Set up physical office space and hire necessary personnel, if required.

Step 5: Compliance and Reporting

• Annual Compliance: Comply with annual filing requirements with the RJSC, including the submission of audited financial statements and annual returns.
• Regulatory Compliance: Ensure ongoing compliance with all applicable laws, regulations, and guidelines in Bangladesh.
• Additional Considerations:
  • Legal Advice: ABC Partners will assist you in ensuring compliance with local laws and regulations throughout the process. We provide ongoing legal support for any amendments to corporate documents or regulatory changes and advise on exit strategies or winding down the SPV if necessary.
  • Accounting and Audit: ABC Partners will assist with accounting services and audit compliance to meet regulatory requirements. We also provide strategic advice on structuring the SPV for financing, investment, or expansion purposes.
  • Contractual Agreements: ABC Partners will draft and finalize any necessary contracts and agreements related to the SPV’s operations, if required.
  • Transactional Support: If your SPV is involved in mergers, acquisitions, or other transactions, we provide legal support for due diligence, negotiations, and drafting transaction documents.
  • Due Diligence and Risk Assessment: Conduct due diligence checks to identify potential risks associated with the SPV structure or business operations. We provide risk mitigation strategies and advice on protecting your interests.
  • Dispute Resolution: Represent your SPV in case of any disputes, litigation, or arbitration proceedings, aiming for timely and favorable resolution.

The process of setting up an SPV in Bangladesh involves navigating legal, regulatory, and procedural steps. ABC Partners comprises a team of experienced professionals, including lawyers, accountants, and business consultants, who can facilitate a smoother process and ensure compliance with all requirements.

Our goal is to ensure that your SPV is set up efficiently, compliantly, and tailored to your specific business goals in Bangladesh. We offer comprehensive legal expertise to navigate the complexities of local regulations and provide ongoing support as your business evolves. Please let us know if you have any specific questions or if there are other ways we can assist you.