special-purpose entity

Special-Purpose Entity

A financing technique in which a company decreases its risk by creating separate partnerships, rather than subsidiaries, for certain holdings and solicits outside investors to take on the risk. In order to qualify as a special-purpose entity, whose financial results are not carried on the company's books, the unit must meet strict accounting guidelines. Compare to subsidary.

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special-purpose entity (SPE)

Usually a limited liability company formed in order to separate profits,losses,and risks from the corporation that created it.The most spectacular example of the use of special-purpose entities was Enron, which used SPEs to siphon off losses and “cook the books.” The use of SPEs is legitimate and necessary in many circumstances, though. (Do not confuse with single-purpose entity, also abbreviated as SPE, which is more specialized and is typically a lender requirement before it will extend mortgage financing on large projects.) Also called special-purpose vehicle.