The Function of Trusts in Business and Commerce

M. W. Lau

in The Economic Structure of Trusts

Published in print January 2011 | ISBN: 9780199602407
Published online May 2011 | e-ISBN: 9780191725203 | DOI:
The Function of Trusts in Business and Commerce

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This chapter examines the reasons behind the trust's popularity in business and commerce. Although the trust is neither a legal entity nor an economic firm, it is widely used in structuring transactions and investment funds. This chapter observes that the trustee's duty of care encourages prudence and conservatism. Also, the duty of impartiality, which is not a feature of corporations, ensures that different classes of investors are treated fairly. But both duties can arguably be replicated in corporations so they are not truly unique to trusts. Rather, this chapter argues that it is the trust's lack of legal personality and lack of intra-firm transfers that make it uniquely suitable for certain commercial transactions. The weak liability protection for the trustee means that it is only suitable for conducting relatively simple activities, such as holding property.

Keywords: business and commerce; duty of care; duty of impartiality; limited liability; legal personality; intra-firm transfers; corporations

Chapter.  4448 words. 

Subjects: Trusts Law

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