Special Purpose Entities

What is a special purpose entity? It is a business, usually a special-purpose entity, established to perform limited functions and to have one or a few primary creditors. This type of entity is sometimes established to protect lenders on large, complex projects, when the lender is to be paid solely or almost exclusively out of the money generated when the project becomes operational.

Under the new Bankruptcy Act of 2005, credit counseling may be required or other options may be required, Contact a Bankruptcy Lawyer to find out all your legal options and rights.

Common Reasons for Special Purpose Entities:

• Accounting Procedures
• Deferment of Income Taxes
• Preferable Legal Jurisdiction

This business is established to have no function other than to develop, own, and operate the project, and to have no principal creditors other than the project lenders.

In this way, the lenders have additional protection because there are fewer creditors to compete for the money generated by the project and there is less likelihood that the project will be forced into bankruptcy. A bankruptcy-remote entity will sometimes issue securities instead of just receiving a direct loan.

Under the new Bankruptcy Act of 2005, credit counseling may be required or other options may be required, Contact a Bankruptcy Lawyer to find out all your legal options and rights.

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