Special purpose acquisition companies (SPACs) were all the rage in 2020, but their popularity has waned in 2021 as a result of various factors, including increased SEC scrutiny. The SPAC model is being further challenged by a derivative lawsuit (Complaint) brought against William A. Ackman’s SPAC – Pershing Square Tontine Holdings, Ltd (PSTH) – alleging that it qualifies as an investment company under the Investment Company Act of 1940 and has breached various provisions thereof. In addition, the Complaint claims that PSTH’s investment adviser – Pershing Square Capital Management, LP – has breached the Investment Advisers Act of 1940. The lawsuit seeks to reframe fundamental features of a typical SPAC structure and, if successful, would significantly affect the SPAC market. Whatever the outcome of the lawsuit, Ackman has already signaled that a new special purpose acquisition rights company (SPARC) is in the works to address the Complaint’s concerns and provide an innovative path for PSTH’s current shareholders to realize long-term value if they choose to participate in the new vehicle. This article summarizes the Complaint, analyzes the potential viability of SPARCs and provides commentary from legal experts about the issues most relevant to PE sponsors. For additional coverage of recent developments in SPACs, see our two-part series: “SEC Scrutiny, Alignment Share Structures and Other Trends in SPAC IPOs and De‑SPAC Transactions” (May 25, 2021); and “Factors for Structuring De‑SPAC Transactions and Negotiating Points When Selling to a SPAC” (Jun. 1, 2021).