The Future for Business Trusts
64 Pages Posted: 7 Apr 2011
Date Written: April 4, 2011
The trust serves a variety of important commercial functions, yet remains under-analyzed and under-utilized. In both Canada and the United States, the lack of dedicated organizational law has diminished the commercial appeal and utility of business trusts, inspiring recent reforms through draft uniform legislation - the Canadian Uniform Income Trusts Act and the American Uniform Statutory Trust Entity Act. The author critically reviews and assesses the two uniform statutes. He argues that they reflect markedly different views on the goals of organizational law. The Canadian legislation supposes that the trust should be a fixed organizational form subject to extensive mandatory regulation. It reflects the relatively modest goals of improving the governance of income trusts and resolving uncertainty over the applicability of ordinary trust law to income trusts while avoiding rules that inhibit value and tax arbitrage. The American legislation has more complex and ambitious goals. It creates an entirely new entity intended to offer efficiency gains by virtue of its extraordinary adaptability to different business purposes as well as market and settlor preferences. The author offers a functional assessment of the uniform legislation, arguing that each statute has mixed success in meeting its legislative objectives. The author also offers normative evaluation of the uniform legislation, focusing on positions taken on key normative questions of organizational law. The Canadian statute gives significant protection to investors but not other stakeholders. The American statute offers flexibility at the cost of accountability, with significant deficits in investor and stakeholder protection.
Keywords: Trusts, Commercial Trusts, Business Trusts, Uniform Statutory Trust Entity Act, Uniform Income Trusts Act, Fiduciary Law, Fiduciary Duties
JEL Classification: K00, L00, M1
Suggested Citation: Suggested Citation