Business Trusts
A business trust is an unincorporated commercial organization in which assets are held in trust by trustees, who have been appointed to manage the assets of one or more beneficiaries (beneficial owners). Trustees are given legal title to the trust property to administer it on the beneficiaries’ behalf. A trust is established by a written declaration of trust, which specifies its terms, including its duration, the powers and duties of the trustees, and the interests of the beneficiaries. Beneficiaries receive certificates of beneficial interest, which are freely transferable.
Business trusts are also known by the names of Massachusetts Trust, after the state in which they originated, and common law trust.
One way in which the business trust differs from a corporation is that a trust does not exist by state charter, and it does not derive a direct benefit from any statute. A voluntary association doing business on the common law right of contract, the trust is free from the statutory rules and regulations that bind a corporation, and it is not required to pay state and federal income taxes.
Trusts are also different from corporations in that beneficiaries, unlike stockholders, have no voice in the management of the business or control over the trustees. This characteristic offers the business trust a greater continuity and flexibility of management. It also subjects the trustee to personal liability, since the trustee and not the trust has total control of the beneficiaries’ assets. Limited liability is extended to the beneficiary but not the trustee, unless the declaration is written otherwise.
This unequal relationship between beneficiary and trustee also distinguishes a business trust from a partnership. Where trustees hold absolute control of the trust property and cannot be removed by the beneficiaries, a partnership relationship does not exist.
Business trusts are most commonly found in investment companies that pool i