Pinion Blog
How I created and run my SPV
The follow-up to the SPV primer: what I actually did to form ours (a Texas LLC, an attorney, our living trust as the member), how we handle the tax return, and the software I use so the bookkeeping never becomes a second job.
Last week I wrote a plain-English guide to what an SPV is and what you're signing up for if you're the friend who runs it. A few people wrote back with the same question: fine, but what did you actually do? Fair. Here is our setup, including the parts I would do differently.
For context: I manage one SPV with two friends. It holds a single investment, nobody takes carry, and I'm the one who signs the documents and keeps the records.
Forming the LLC
We used an attorney to draft and file the formation paperwork for a Texas LLC. That was not the cheapest way to do it. The state filing itself is a few hundred dollars, and there are online services that will handle the rest for less than a lawyer's hourly rate. We are investors in Zen Business. It kills me that I didn’t think to use that service, but I didn’t. Next time!
We went with the attorney because we already had a relationship with one. That meant the whole thing was done in days, with no back-and-forth and nobody googling "registered agent" at eleven at night. When you're fired up about an investment, speed and certainty were worth more to me than the savings. If you don't already have a lawyer you trust, the do-it-yourself route is reasonable for a vehicle this simple.
Either way, have someone qualified read the operating agreement before anyone signs it. It's the document that says who owns what and who gets to decide things, and it's the one you'll reach for if anything ever gets weird. For the record, we have not had anything weird come up.
Who the member actually is
Here's a detail that's easy to get wrong on the very first form: our family's member of the SPV isn't me or my wife. It's our living trust.
That's an estate-planning choice more than an SPV choice. Assets a living trust holds generally pass to the beneficiaries without going through probate, so putting the trust on the member roster means our SPV interest is covered by the same plan as everything else we own. It cost nothing extra to set up that way, and it would have been a nuisance to change later.
If you and your spouse hold assets in a trust, ask your attorney whether the trust should be the member before the operating agreement is signed, not after. And the usual caveat applies: I'm describing what we did in Texas, not giving you legal advice. It’s the time when I mention I’m not an attorney. Again.
The tax return
An LLC with more than one member files a partnership return every year, and that return produces a Schedule K-1 for each member. For our first year we used our accountant, which is the obvious move and the right one if your SPV has any complexity to it.
Ours doesn't. A single-asset SPV with no income yet and a handful of expenses is about as simple as a partnership return gets, and paying a professional's rate for it started to feel like hiring a caterer to make toast. So now I use H&R Block for it. It handles the partnership return and the K-1s, and I share those with the members.
There is something called a Section 761(a) "Election Out" of Partnership Treatment. Under certain circumstances you don’t have to file a return or issue K-1’s. Since we were investing into a fund, there will be capital calls and investment returns so this doesn’t work for us, but it’s worth knowing something like this exists.
If your vehicle holds several positions, has paid out distributions, or has members in different states, get the accountant back. Ours is simple, so ours is cheap - like $250 per year.
Running it day to day
This is the part nobody warns you about. The SPV exists for years, and somebody has to keep the books the whole time: who wired what, when capital was called, what got spent on the state franchise report and the registered agent, what the position is worth now, and someday, who gets how much when money comes back.
The default tool for that job is a spreadsheet, and I have seen what three years does to a spreadsheet. I use Friendly SPV instead, which is the part of Pinion I built for exactly this. Full disclosure, obviously: Pinion is my company. Here's what it does for our SPV:
- A ledger for the entity itself: member contributions, the investment, expenses, distributions and valuation updates, with a bank-statement import so I'm not retyping transactions.
- Capital calls split pro-rata to the cent, with an emailed notice to each member showing their share, and a record of who has funded and who hasn't.
- Documents shared with the right audience: the operating agreement goes to everyone, each K-1 goes to that one member only, all grouped by tax year.
- A free account for every member that shows them their own share: what they put in, what it's worth, what they've received. The "hey, what's our thing worth?" texts stopped.
- A year-end export that goes to whoever prepares the return.
It's $10 a month per SPV on the Family and Team plans, and members pay nothing.
What I'd do the same, and what I wouldn't
Same: the trust as member, and keeping the vehicle to one investment. Every one of those made the later years easier.
Different: Zen Business, set up the bookkeeping on day one rather than after the first capital call, when I was already reconstructing who had sent what. The manager's job is mostly administration, and administration is only painful when you're behind on it.
None of this is legal or tax advice. It's just what we did, and it has held up SO FAR.