If you’re wondering if there’s a reason to acquire a business trust, we will help you understand the advantages.
Private and Powerful
Are you searching for the most private way to organize your new business? Or maybe improve your current operating structure? Many people are familiar with the most common business organizations — the corporation, LLC, and the partnership.
But now you have a powerful new ally, the Business Trust.
A Business Trust combines the best features of a corporation, llc and partnership all in one. Yet it’s much less hassle – no secretary of state registration, no fees, no resident agent, and no state permission. It can operate in California or nationwide. And your Business Trust is completely private.
Many successful business owners like you are looking for a fresh alternative to government sponsorship. It’s exactly what happened to us. After years of operating corporations and LLCs we found the Business Trust solution. It relieved us of many hassles when analyzing how best to organize a low profile investment management company.
What is It?
A Business Trust is recognized as wholly, valid and legal form of business organization, with the right to do business, hold and convey real estate, make contracts and enforce its rights in court.
Low Profile Privacy
Unlike a registered corporation, LLC, partnership, or statutory trust – your business trust is totally off the radar screen. It has no secretary of state filing requirements. It does not appear in any public online database. This means your business assets, bank accounts, name, address and owners are invisible to outsiders.
Read the European or Asian WSJ, FT or Reuters financial news and you’ll see Business Trusts used extensively in Singapore, the United Kingdom, Australia, South Africa, and India. As these are often registered public investment companies, they apply a different strategy to their mission. However, the fundamental trust/trustee/shareholder structure is essentially identical to those who prefer privacy strategy.
Personal versus Commercial Trusts
Living Trusts designed for estate planning fit within the category of “Personal Trusts” whose purpose is to conserve and distribute wealth transfers. Business Trusts are designed for doing business that fit within the category of “Commercial Trusts” whose purpose is to make a profit.
United States History
Since 1940 in the United States, mutual funds such as Vanguard organized as Business Trusts. Their industry holds trillions of dollars of assets. Rockefeller’s infamous Standard Oil was a maze of business trusts. In the 1960’s real estate investment trusts (REIT) became popular and remain so today.
In America many professionals — including most lawyers — have little or no understanding of them. None of the leading casebooks on business organizations or business associations cover the business trust. Law school curriculum is focused entirely on trusts and estates for wealth transfer. There are few references to a trust structure for operating a business. Furthermore, none of them advocate any form of asset privacy strategy.
The furthest a lawyer will venture in the privacy space is to use a government sponsored and registered corporation or LLC. This is the best they can do, which is just not enough for us.
Like the other kinds of trusts described on this site, business trusts have a long history. In our litigious and open internet society, they are becoming an increasingly popular way for successful investors to operate with superior privacy.
Federal and state authorities retain the power to tax the income of any business in your chosen domicile. However, with a Business Trust you have great flexibility in how you are classified. You can be taxed as – an individual, partnership, or corporation.
Depending upon the number of shareholders, you are taxed as an individual or a partnership. In either case you can optionally elect to be taxed as a corporation. With the new tax law many investors are reorganizing for the 21% corporate tax rates.
Because the business trust structure is NOT a statutory entity in California, you are exempt from paying the annual $800 franchise tax to the Franchise Tax Board.
For more information on federal tax classifications see Treasury Regulations 301.7701-4(b) for more details
And unlike other trusts described on this site, a Business Trust can file Chapter 7 and 11 of the Bankruptcy Code
Establishing your Business Trust is less costly and easier than a corporation or LLC. Over the years, it also requires less paperwork, zero state fees, has fewer legal requirements, allows you greater flexibility, and offers excellent tax options.
Corporations and LLCs are paperwork-intensive, and can take weeks to fully set up. Naming conflicts do occur. With these organizational models, you incur ongoing fees, filings and disclosures with the secretary of state in whatever state(s) you do business. Over ten years these mandatory obligations can easily cost you $15,000 in expenses. And these hard costs exclude the value of your personal time.
Your Business Trust avoids all of these state regulatory hassles and expense.
In return for adhering to the many state rules and regulations of the corporation and LLC models, companies are granted certain statutory protections. But should it fail to follow any of the many requirements to the letter, the so-called “corporate veil” (liability protection provided by the legal entity) is pierced. This can render the partners, directors, and stockholders unprotected and personally liable for debts of the organization. Most of the time everything is fine but if one day it’s “your turn,” you best have all your paperwork in order.
Your Business Trust has no corporate veil or paperwork requirements. It operates with a minimum of state regulation. The participants – trustees and beneficiaries possess a great many benefits and safety protections. It remains a prudent business practice to keep basic records according to the original trust agreement.
No Resident Agent
States require Corporations and LLCs to maintain a “resident agent” for legal service. The agent resides in the state where the company is chartered and is required by law to accept legal papers served upon the corporation or LLC. Lawyers like the resident agent requirement because it makes it easy for them to sue your corporation or LLC.
Business Trusts do not have resident agents. They do they have address requirements. Attorneys eager to sue a private business trust has an uphill battle to climb. First they must locate and identify the current trustees. There might be 49 states for them to search? It’s difficult, expensive and time consuming. It’s not our job to make it easy for them.
Reduced Liability for Shareholders
In the conventional corporation structure, the stockholders are the de facto legal owners of assets. The officers are agents of the stockholders. This can cause liability. Although a stockholder of Google is unlikely to have problems, in a small corporation they are at greater risk because of state compliance issues.
In a Business Trust, the trustees are the legal owners of assets. They are not agents of the shareholders. Yet they have a fiduciary responsibility to the shareholders. Provided that the trustees manage the business without interference, the shareholders liability is little to none. This single fact alone is important to many people.
Corporate stockholders as owners can sue the officers or directors for performance issues. Trust shareholder are not owners and cannot sue the trustees for performance issues. Might this be to your advantage? It is one reason mutual funds trustees prefer the business trust structure.
Greater Financial Flexibility
In the corporate structure, the company may only pay dividends to stockholders. With the Business Trust, the Trustees may distribute dividends, return of capital, profits, or none to the shareholders. The financial mission of a Business Trust has greater flexiblity.
A few states such as Delaware offer Statutory Business Trusts. They are primarily designed for corporate finance and required if a public traded company. They are registered with the Secretary of State. They are not designed for privacy.
Remember, the statutory trust and corporation are both artificial persons created by the state having no rights. Your common law Business Trust is a natural person, with all the rights of an individual. Depending upon the type of business you operate, you may need a local business license.
“…a business trust is a citizen of every State in which its shareholders reside…” Navarro Savings Assn v. Lee – No 79-465 United States Supreme Court (1980)
We Are Your Business Trust Source
A business trust is the best way to operate your successful investment business. It offers you savings and benefits including comprehensive asset privacy. It can interface with other legal entities as well as personal trusts. Doesn’t a Business Trust just make sense for you?
Comparison: Business Trust vs. Corporation
|Advantage / Disadvantage||Corporation||Business Trust|
|Simple and Swift Setup||✓|
|Avoids naturalization in each state where you do business||✓|
|Avoids Secretary of State Registration||✓|
|Avoids Resident Agent Requirement||✓|
|Avoids public disclosures||✓|
|Invisible to Public Online Databases||✓|
|Taxed As Individual, Partnership or Corporation||✓|
|Exempt Franchise Tax in California||✓|
|Avoids annual paperwork filings||✓|
|Avoids annual fees in each state where you do business||✓|
|Avoids annual meetings of shareholders, trustees, officers||✓|
|Avoids statutory fees||✓|
|Avoids Personal Liability of Shareholder||✓|
Tap into the Unique Power of Trusts
To tap into the unique power of trusts for ensuring a secure financial future you need an expert, and we are the experts across a broad range of infinitely valuable private trusts. TrustArte is here to personally assist you. We’re here to educate you. We’re here to give your valuable assets the privacy they not only deserve, but need.
Our Open Philosophy Trust Arte will openly engage with other professional advisors such as tax specialists and accountants to develop the most effective solutions for our clients. Should their services be of value to you, our trust professionals will work with your other advisors. This “open architecture” philosophy, which is reflected throughout our organization, allows us to build closer relationships with our clients and offer them the best solutions.