Special purpose entity is a separate legal entity or a subsidiary company that is created for the purpose of shifting the financial risk of a parent company. In case the parent company is declared bankrupt the special purpose entity is still not liable to pay its debts. In 2001 one of the corporate frauds were covered through a special-purpose entity by Enron Incorporation to remove its debt from its books.
The real benefit is that the parent company does not have to show the financials of a special purpose entity in its books that makes the risky situations go away with recording them in the balance sheet of the special purpose entity separately.
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