By DAVID G. ENANG ESQ. MICIArb, AICMC
INTRODUCTION
In today’s fast-paced economy, riddled with inflation and multiple opportunities, most young people are faced with peculiar challenges of capital and mentorship. Yet, we have young people who are rewriting the rules of wealth creation. Instead of waiting for big capital or solo success, many are teaming up with friends to invest, build businesses, and grow assets. Imagine pooling resources with your closest friends to buy real estate, invest in startups, or launch a business. Instead of looking for financial freedom alone, you build wealth together with your closest friends. One powerful tool for this? Special Purpose Vehicles (SPVs).
WHAT IS A SPECIAL PURPOSE VEHICLE (SPV)?
An SPV is a company formed for a specific purpose, such as:
- Buying real estate or any kind of asset
- Investing in a startup
- Launching a joint business venture, etc.
An SPV is not just a group chat with friends talking about money and investments. It is a legally recognized business structure that protects your interests, defines your roles, and helps you scale. That’s the power of a Special Purpose Vehicle (SPV) when done correctly.
WHY SHOULD YOU CREATE SPVs WITH FRIENDS?
Pooling resources with trusted friends allows you to:
- Access bigger opportunities (e.g, a ₦10M land split among 5 people, likewise, a ₦7 billion land split among 10 friends to seize an opportunity in the real estate sector).
- Share risks and responsibilities
- Leverage diverse skills (finance, marketing, legal, tech)
- Build a track record for future investors or lenders.
This business structure promises growth and opportunities, but without a legal structure, things can go bad very quickly.
As a rule of thumb in this type of venture, “Begin with trust but continue with contracts.”
HOW DO YOU SET UP AN SPV?
Step 1: Assemble Your Dream Team.
Before you think about paperwork and profits, think about people. Your SPV partners should share a common vision, be trustworthy and financially responsible individuals. While you may hold the strong notion that even our most trustworthy friends can betray our trust given the right circumstances, the coming contents of this article will describe the safeguards to mitigate such occurrences.
Step 2: Form Your SPV
An SPV is typically a private limited company registered with the Corporate Affairs Commission (CAC) in Nigeria. If your company is to be registered in the United States, then it will be a Limited Liability Company (popularly called an LLC).
Step 3: Define Your Investment Strategy
Your SPV should have a clear investment goal. For examples:
- Buy and flip residential properties in Abuja.
- Rent, renovate and put out residential properties for short-lets.
- Buy landed property and resale after it’s value increases (Land Banking).
- Invest in early-stage fintech startups
- Launch a joint e-commerce brand
This clear goal will steer the direction of your SPV.
LEGAL DOCUMENTATION & SAFEGUARDS
For an SPV to succeed, every member or partner must be regulated and accountable. This is guaranteed by contracts and financial safeguards.
Considering that an SPV is typically a limited liability Company, it would typically have shares. You and your friends will own these shares. These shares should be regulated with a Shareholders Agreement. The shareholder agreement will spell out the profit-sharing formula using shareholding ratios, it will describe when and how to deal with the shares you own and even dictate the decision making power of every shareholder.
For instance, your Shareholders Agreement can restrict Shareholders from selling shares to outsiders without first offering them to existing shareholders in the SPV.
Every member and director of the company must be aware of their duties, powers, and liabilities. These are typically contained in the Articles of Association of the SPV. This document will spell out how the company will make its decisions and the number of votes required to make those decisions binding on the members and the company.
How about the issue of finance and misappropriation of company funds? Our banking system is more advanced than it used to be. A board resolution will be passed to determine who is responsible for what. This board resolution together with the mechanics of a well structured Articles of Association will safeguard how money is disbursed from your SPV’s account, the Directors and Shareholders responsible for such disbursements and the requirements for any disbursement of company funds.
PRACTICAL EXAMPLE
Imagine you and four friends want to rent a 4 bedroom terrace duplex in Wuye, Abuja, and set up a short-let apartment. You each contribute ₦10M. You form an SPV called “Cozy Short-stay Ltd.”
Your lawyer helps you:
- Review the tenancy or lease agreement. 2. Conducts search on nature of property use.
- Registers the company.
- Drafts a Shareholders Agreement and
- Creates a rental management contract.
Now, you’re not just co-owners. You’re co-founders of a legally sound business. Profits from the business will be shared according to each party’s financial contribution.
CONCLUSION
Building wealth with friends isn’t just possible. It’s powerful. With the right structure, strategy, and legal support, your SPV can be the launchpad for financial freedom.
David G. Enang Esq. MICIArb, AICMC is a legal practitioner, Construction Industry Arbitrator and an Associate in the Real Estate, Construction and Infrastructure Law Practice Group at Law Corridor.