Business Trust

• Author: Jeffrey Lehman, Shirelle Phelps

Page 193

An unincorporated business organization created by a legal document, a declaration of trust, and used in place of a corporation or partnership for the transaction of various kinds of business with limited liability.

The use of a business trust, also called a Massachusetts trust or a common-law trust, originated years ago to circumvent restrictions imposed upon corporate acquisition and development of real estate while achieving the limited liability aspect of a corporation. A business trust differs from a corporation in that it does not receive a charter from the state giving it legal recognition; it derives its status from the voluntary action of the individuals who form it. Its use has been expanded to include the purchase of SECURITIES and commodities.

A business trust is similar to a traditional trust in that its trustees are given legal title to the trust property to administer it for the advantage of its beneficiaries who hold equitable title to it. A written declaration of trust specifying the terms of the trust, its duration, the powers and duties of the trustees, and the interests of the beneficiaries is essential for the creation of a business trust. The beneficiaries receive certificates of beneficial interest as evidence of their interest in the trust, which is freely transferable.

In some states, a business trust is subject to the laws of trusts while, in others, the laws of corporations or partnerships govern its existence. The laws of each state in which a business trust is involved in transactions must be consulted to ensure that the trust is treated as an entity whose members have limited liability. If the laws of a...