Research Handbooks in Corporate Law and Governance series
Edited by Robert W. Hillman and Mark J. Loewenstein
Chapter 16: Business trusts
Virtually ignored by academics, the business trust arguably is the most prominent organizational form used today. This claim is disputable essentially only insofar that no one knows the actual composition, scale, and volume of trusts used for commercial purposes. Yet no one doubts that trusts are the dominant form for massive employee pensions and mutual funds, as well as for a myriad of asset securitization and structured finance transactions. The multi-trillion dollar question is why. To arrive at an answer, one first must delve into the historical origin and growth of the business trust. Grasping this in turn enables one to comprehend and evaluate the diverse modern permutations of this organizational form, which has been described as a “mystery” with a “secret life.” Demystifying the business trust is difficult, because it has the ability to assume many different forms, bear many labels, and perform many functions. This versatility resists the conventional approach of using a template of features (e.g., formation, limited liability, management structure, transferability) to compare the business trust to other types of organizational forms. Instead, the common functions of the business trust are delineated to evince some of its objective merits and, incidentally, its comparative advantages over other forms.
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