In the context of investment crowdfunding, Special-Purpose Entities (sometimes also referred to as SPVs or special-purpose vehicles) are legal entities created to hold investor funds and/or to own particular assets.
For example, when investing in a multi-family apartment building through a platform like EquityMultiple, an LLC is created that will legally own the property, as well as pay contractors and other expenses. As an investor, you receive shares (usually referred to as membership interests) in that LLC, entitling you to a share of the cash flow from rental income and of any profits from appreciation when the property is sold.
A similar model is used for many other alternative investments, such as investments in startups (the SPE becomes the formal corporate shareholder of the startup).
Typically the investment platform will act as the SPE’s manager, making day-to-day decisions (and often receiving a fee for that service, paid by the SPE). Investors rarely have any voting rights or control over the SPE.
Depending on the specific investment structure, you’ll likely receive a tax form (most commonly a Form K-1) each year indicating your relative share of any profit (or loss) from the SPE.
Want to learn more but aren’t sure where to start? You can explore 114 crowdfunding investment platforms in our database and learn more about the nuts and bolts of crowdfunding and alternative investing on our blog. Did you know you can use a self-directed retirement account to invest in many alternative investments? Rocket Dollar makes it easy, and when you sign up using that link you'll be helping to support YieldTalk.