Special Purpose Entity (SPE)

A Special Purpose Entity (SPE) is a separate legal company created by a parent company to isolate financial risk or manage specific assets or projects. By doing so, the parent can leverage the SPE for financing, reduce its own risk exposure, or achieve particular accounting objectives. The key idea is that the SPE operates independently, with its own assets and liabilities, making it easier to manage specific deals or projects without affecting the parent’s overall financial standing. This structure is common in areas like project finance, asset securitizations, and off-balance-sheet arrangements.