special purpose entity (SPE) business definition

A semi-independent business organization formed to carry out a specific function. For example, a company might form an SPE to purchase some of the firm's assets. The SPE uses the assets as collateral for a loan, with proceeds going to pay the company for the purchased assets. The assets and corresponding debt become balance sheet entries of the SPE, not the corporation. Companies that wish to eliminate troublesome assets and/or debts from their financial statements sometimes abuse the use of special purpose entities.