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A business trust is a legal organization set up for the control and management of assets and property. This type of trust has trustees who take responsibility for the management of the assets in the trust. The trustees manage the assets not for their own gain and benefit, but for the benefit of one or more beneficiaries. In order to be considered a business trust, this trust must have business activity, such as investing or buying and selling products. The person or group of people who create a business trust is referred to as the grantor or settlor.
Also called a common-law trust, a business trust essentially becomes the owner of the assets within it. Its beneficiaries, however, may receive its profits or income, and eventually, its beneficiaries may receive disbursements of the assets. In the meantime, this type of trust provides a way to keep business assets safe from creditors and lawsuits. Depending on the jurisdiction’s laws and the way the trust is created, it may provide protection from certain types of taxation as well.
Often, business trusts are discussed in relation to corporations and partnerships. These trusts are unincorporated and are typically created as alternatives to corporations or partnerships. The business trust can conduct a wide variety of business, including investing, buying, and selling, yet offers beneficiaries a limited level of liability; a business trust may even invest in stocks, bonds, and similar investment instruments. Unlike corporations, business trusts do not receive charters from the states in which they are formed. Instead, they are formed through the creation of declarations of trust, which their grantors voluntarily sign.
As with other trusts, the trustees hold the titles to the assets within the business trust for the sake of its beneficiaries. They administer the trust based on the terms set forth in the declaration of trust. This document provides the information the trustees need to manage the trust according to the wishes of the person or group of people who created it. It lists how long the trust is supposed to last, what the trustees' duties are, and what level of authority the trustees have. This document also details the interest the beneficiaries have in the trust.
Each beneficiary of a business trust receives a document referred to as a certificate of beneficial interest. This serves to show how much interest a beneficiary has in the trust. If desired, a beneficiary may transfer his interest to another party.
What is the difference between a business trust and a trust company?
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