We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Law

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Is a Business Trust Act?

By Geisha A. Legazpi
Updated: May 17, 2024
Views: 4,687
Share

A business trust act refers to the laws that govern a commercial organization established for the purpose of managing and controlling assets set up in a trust. Although it is an organization conferred with a status, a business trust should be differentiated from a corporation. A corporation is created by legislative action of a particular state; it then acquires the status of a juridical person that has rights, privileges, and responsibilities under the law. This personality is distinct from the members that make up the corporation. A business trust, on the other hand, acquires its status not by the grant of the state’s legislature, but by voluntary action of the people who establish the trust.

Typically, a business trust act involves processes similar to that found in a traditional trust setup wherein there are trustees and beneficiaries. The trustees are people who manage the assets, while the beneficiaries reap the advantage or benefit arising from this administration. Moreover, as with a traditional trust, essential to the business trust is a contract outlining the terms and the duration of the trust, the extent and limitations of the powers of the trustees, and the interests of the beneficiaries. Asset management may result in profit or losses, and since a trust usually consists of a number of beneficiaries, the share of the beneficiaries in the profits is proportional to their interests. As proof of their stake in the trust, the beneficiaries are given certificates indicating their interests.

The purpose of the business trust act is to ensure that the assets of a business are kept safe from creditors, particularly as a result of a final judgment in a lawsuit initiated for that purpose. If, however, the liability of a trust prospers and is considered in a lawsuit, the trustees are answerable to third parties who are looking to execute on the properties involved in the trust. Consequently, the trustees may sue under circumstances involving the trust. The trustees, therefore, must always have in mind the best interests of the beneficiaries. In some cases, the business trust act may also result in the tax exemption of certain types of assets.

A business trust act is formulated in consideration of the trust laws of the state or country where it was created, as well as the partnership and corporation laws existing in that state or country. This is because the business trust can be subjected to either. Finally, it should be noted that while a business trust is distinct from a corporation, it is considered one for purposes of collecting income tax.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Editors' Picks

Discussion Comments
Share
https://www.wisegeek.net/what-is-a-business-trust-act.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.