A business trust offers businesses some of the advantages of a corporation without the need for incorporation. A Massachusetts business trust is an association where property is held and managed by a trustee(s) for the benefit of the beneficiaries, who hold of transferable “shares” i.e. ownership interest in the trust property. In Massachusetts, a business trust is created by recording a “declaration of trust” with the clerk of each city and town where the trust has a usual place of business and with the Secretary of the Commonwealth; any amendments to the declaration of trust must be filed in the same manner. See M.G.L. c. 182, § 2. The same “name” restrictions that apply to corporations and other business entities also apply to business trusts. Thus, a Massachusetts business trust cannot have the same or substantially similar name as some other business registered in Massachusetts.
Massachusetts law does not mandate what must be contained in the declaration of trust but based on Massachusetts case law the following matters should be addressed in the declaration of trust:
- “the date of the declaration of trust;
- the name of the trustee or trustees;
- a description of the trust res;
- the name of the trust;
- the principal place of business of the trust;
- the purposes for which the trust is being organized;
- provisions for the removal and succession of trustees;
- provisions for the sole and joint authority of trustees;
- a description of the powers of the trustee;
- the manner of execution of documents on behalf of the trust;
- provisions describing the means of certifying to actions of the trustees and for establishing reliance on their authority;
- provisions relating to the liability of stockholders and trustees and for indemnification and contribution;
- provisions for the compensation of trustees;
- provisions relating to shares of beneficial interest, their transfer, and the certificates representing them;
- provisions relating to the termination of the trust;
- the manner of amending the declaration of trust; and
- governing law.” Choice of Business Entity: General Strategies, ODMB MA-CLE 1-1.
In Massachusetts, the trustees control and manage the trust. The beneficiaries (i.e. the persons who hold the beneficial shares of the trust property) cannot participate in the management or control of the trust business without potentially losing limitations on liability that the business trust provides. Therefore, so long as the trust beneficiary stockholders do not participate in the trust business management, they are not personally liable for debts and obligations of the business trust. The business trust is a separate entity and may be sued for negligence and other claims.
Further Considerations for a Business Trust
While business trusts are sometimes known as Massachusetts trusts, they are not confined to Massachusetts. Other states, however, have different laws for their business trusts. If you wish to enter into a business trust outside of Massachusetts, consult with a trust attorney to ensure you understand whether the trust will be treated as a partnership, corporation or other entity in business transactions. The duties and liabilities of the trustees may be significantly impacted by state laws.
It is important that trustees stay fully compliant when managing and controlling the business trust property. In some cases, active management of property by trustees can effectively eliminate limited liability. Staying fully compliant with regulations is essential to avoid having a business trust treated as a partnership. In addition, trustees need to understand tax obligations, which are similar for corporations and business trusts.
If you are interested in creating a business trust, are wondering which business structure is right for you or need legal help with an existing business, contact Calabrese Law Associates for a consultation. Our five-department structure is designed to help clients succeed.
While this type of trust can offer your business some advantages, you will want to consult with the business trust attorneys at Calabrese Law Associates in Boston before deciding to form a business trust. Our business attorneys can help you understand whether a trust is right for you and can address your business’s unique needs. He or she can also ensure you stay compliant with current laws, best practices, and regulations concerning trusts.
If you need a declaration of business trust, the attorneys at Boston’s Calabrese Law Association can help you create a strong declaration of trust document. Contact Calabrese Law Associates to discuss your business needs with one of our attorneys.