A business trust operates as a legal entity that holds and manages assets for the benefit of its beneficiaries.
It’s created through a trust agreement or declaration.
The trust is managed by a trustee who must act in the best interests of the beneficiaries.
Beneficiaries are the individuals or entities that benefit from the trust’s assets.
The trustee has a fiduciary duty to manage the trust prudently and honestly.
The trust’s purpose and rules are defined in the trust agreement.
The trust can own property, investments, and other assets.
Income generated by the trust is distributed to beneficiaries based on the agreement.
A trust can be revocable or irrevocable, and it helps with estate planning, asset protection, and avoiding probate.
A business trust, often called a “Common Law Trust,” is a unique type of business organization.
It’s formed when assets are transferred to a trustee, who then manages those assets for the benefit of individuals known as beneficiaries.
In essence, it’s like an agreement where the trustee runs the business, but the beneficiaries reap the profits.
A business trust operates much like any corporation or partnership but with a different legal structure.
Trust Code governs the formation, operation, and dissolution of business trusts.
Business trusts can conduct a range of business activities, from real estate investments to more traditional business operations.
The trust structure provides potential benefits such as:
However, just like any business entity, it requires careful planning and management to ensure legal compliance and financial success.
Yes, you can put a business in a trust.
A trust is a legal arrangement that allows you to transfer assets, like a business, to be managed by a trustee.
The trustee holds the assets on behalf of the beneficiaries you name.
This method helps protect the business, can offer tax advantages, and ensure a smooth transition of control if something happens to you.
However, the process is complex and varies based on the type of trust and business structure .
Therefore, it’s important to carefully plan and consider all aspects before moving your business into a trust.
Here’s an example of a business trust:
Let’s say we have a company, Peach Properties LLC, that owns several commercial real estate properties in Atlanta.
The company wants to protect these assets and manage them efficiently.
To do this, Peach Properties decides to form a business trust.
This example simplifies the process, but it illustrates how a business trust operates.
Each step of setting up the trust , from creating the declaration to naming beneficiaries, would be governed by state-specific laws and regulations.
The Peach Properties Trust, once established, operates as a separate legal entity and provides several benefits to the original owners.
Let’s look at the different types of business trusts.
They let individuals invest in large-scale, income-producing real estate.
The idea is similar to a mutual fund for real estate.
A REIT can invest in various types of properties.
These include offices, apartments, warehouses, shopping centers, and even hospitals.
To start a REIT, a business must comply with certain rules.
First, it needs to be structured as a corporation, trust , or association.
Second, it must be managed by trustees or directors.
Third, its shares need to be transferable.
Fourth, it must have at least 100 shareholders.
Also, at least 75% of a REIT’s income must come from real estate.
And it should invest at least 75% of its total assets in real estate, cash, or treasuries.
Most importantly, a REIT must distribute at least 90% of its taxable income to shareholders annually.
By meeting these criteria, a REIT can avoid paying corporate income tax.
The tax burden is passed onto the shareholders instead.
A Delaware Statutory Trust (DST) is a legally recognized trust created for business purposes.
It’s a flexible structure used mainly for holding, managing, and investing in business assets.
In a DST, the investors are beneficiaries who own a “beneficial interest”.
This interest represents their claim on the income or profits of the trust.
The trustee manages the DST and has the power to make decisions about the trust’s assets.
DSTs are primarily used in real estate investments, but they can also be used for other business assets.
For example, they can hold securities, cash, or even artwork.
However, DSTs are under the jurisdiction of Delaware law, even if the assets or beneficiaries are located in other states.
Investors can still take advantage of DSTs for their investment needs, but the DST itself is governed by Delaware law.
This is because Delaware’s business laws are generally more flexible and favorable for business trusts.
For businesses, DSTs offer several benefits.
They provide liability protection, as the beneficiaries are not personally responsible for the trust’s debts or obligations.
DSTs also allow for a large number of investors, and they are exempt from corporate income tax in Delaware.
DSTs can be a useful tool for investors looking for a flexible and tax-efficient investment structure.
However, they must comply with Delaware’s laws and regulations.
And any business activities conducted may still be subject to state-level business regulations and taxes.
Business and Industrial Development Corporations, often known as BIDCOs, are a type of investment company.
They’re designed to provide capital to and stimulate the growth of businesses in a particular region.
BIDCOs can play a crucial role in supporting local industry and economic growth.
A BIDCO is formed as a corporation or a business trust.
It’s typically privately held, and its primary function is to invest in or offer loans to small and medium enterprises (SMEs).
The main goal is to foster business growth and development, especially in sectors vital to the state’s economy.
BIDCOs are regulated by the state.
This means they follow specific regulations to ensure their operations align with state economic development goals.
For instance, they may be required to invest a certain percentage of their assets within the state.
In terms of applicability, if you’re an SME seeking capital, you might consider partnering with a BIDCO.
Similarly, if you’re an investor looking to stimulate local economic growth while potentially earning returns, investing in a BIDCO could be a viable option.
Lastly, BIDCOs can be an important part of a state’s strategy to attract more businesses.
This is by providing accessible funding and supporting the growth of existing enterprises.
This makes them a significant aspect of the business trust landscape.
