How does a business trust work?

On Behalf of | Aug 3, 2023 | Business Law |

A business trust is a structure wherein a trustee manages the business assets on behalf of beneficiaries. In this arrangement, the trust outlines the powers and responsibilities of the trustee and the rights of the beneficiaries. Additionally, the document can include the trust’s validity duration. Once the trust’s validity expires, the business interests transfer to the beneficiaries.

Who are the parties involved?

When it comes to ownership, it technically is the business trust that owns the business. Nonetheless, the structure involves the following legal entities:

  • Trustee: Generally, the trustee handles and controls the business’s properties and investments. Moreover, they have a fiduciary duty to act for the beneficiaries’ interests. A business trustee could be a person or an organization.
  • Beneficiaries: The rights and interests of the beneficiaries are summarized in the trust document. A business trust can have only one or multiple beneficiaries.

Business trusts are legal agreements, so trust lawyers may be involved too in the process of establishing the trust. This is to ensure that the terms of the agreement are clear and valid.

Why do people choose business trust?

Many entrepreneurs opt for business trusts because they have promising advantages. For one, it protects the beneficiaries from individual liability. Moreover, it provides privacy and ease of transfer to the beneficiaries once the trust’s duration ends.

But business trusts have drawbacks too. This structure is complex and often faces legal compliance issues. Moreover, it can cost more than other entities, which makes it difficult to maintain.

Ensure your priorities align with your chosen structure

Choosing a business entity is never an easy task. If anything, it is one of the most important aspects of business formation. Whether you are going for a business trust or another structure, you must ensure it aligns with your goals and priorities.


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