Business Trust

Also found in: Financial.

Business Trust

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 particular state consider a business trust to be a partnership, the beneficiaries may be fully liable for any judgments rendered against it. The trustees of a business trust are liable to third parties who deal with the trust unless there is a contract provision to the contrary, since they hold legal title to the trust property and may sue and be sued in actions involving the trust. They may, however, seek indemnity from the trust property and possibly from the beneficiaries.

The property of a business trust is managed and controlled by trustees who have a fiduciary duty to the beneficiaries to act in their best interests. In many states, the participation of the beneficiaries in the management of the property destroys their limited liability, and the arrangement will usually be treated as a partnership.

Profits and losses resulting from the use and investment of the trust property are shared proportionally by the beneficiaries according to their interests in the trusts.

A business trust is considered a corporation for purposes of federal Income Tax and similarly under various state income tax laws.

References in periodicals archive ?
Accordia Golf Trust is a business trust focused on investments in golf course assets in Japan.
the trustee-manager of Accordia Golf Trust, said: Accordia Golf Trust is the first business trust comprising investments in golf course assets in Japan to be listed on SGX.
The company intends to list its business trust structure and partially offload its telecom assets as part of its near-term deleveraging agenda, but uncertainties remain on the timing and size of the debt reduction.
The HPH Trust is the world's first publicly listed container port business trust.
The lawsuit claimed Michael as the sole owner of Yankee Spirits and the sole trustee and beneficiary of YSI Business Trust, which is the sole owner of Yankee Spirits.
SP PowerGrid, a subsidiary of Temasek Holding, is likely to be listed as a business trust the Business Times has reported, citing Wong Kim Yin, managing director for energy investment.
The Radio Scotland presenter launched BT Scotland's Young E-ntrepreneurs Scheme and the Prince's Scottish Youth Business Trust website.
The business trust reduces its income by claiming deductions for payments to the equipment trust.
The business trust then makes payments to the trust unit holders that purport to reduce the taxable income of the trust to a point at which little or no tax is due.
2005-126-The Tax Court held that there were legitimate and significant nontax purposes for the formation of two Delaware business trusts that held substantial amounts of the stock of DuPont and Exxon.

Full browser ?