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A special purpose entity, sometimes called a special purpose vehicle, is a legal entity created for one very limited, particular task. Typically, SPEs are subsidiaries of a larger corporation.

Usually the task of a special purpose entity is to isolate risk.  By setting up an SPE dedicated to the acquisition and financing of specific assets, the parent corporation is protected in case of bankruptcy, loan default or other loss on those assets. 

Another use for an SPE is managing a single asset that has exceptionally complex financial transactions and requires numerous permits for its operation, such as a factory or a power plant. By placing the asset in the SPE, it’s easier to keep track of income and expenses associated with this entity. Plus, if the owner wants to sell the asset, any required permits will transfer with the SPE, eliminating the need to assign them over separately. This greatly simplifies a potentially difficult sale.  

In the past, corporate managers have used special purpose entities to hide debt and thus make the company's financial statements look better.  This was particularly an issue in the Enron scandal of 2001. 

Still, special purpose entities have a legitimate purpose in helping companies isolate risk, which consequently creates options for companies to raise capital and structure debt in a more efficient way.  

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