Download business trust

BUSINESS TRUSTS
Chapter 17: Companies and Other
Business Structures
MEANING AND USES
• Four characteristics:
– Created by founder, donor or settlor
– Assets under control of another (trustee)
– During the founders lifetime = inter vivos, on the
founders death = mortis causa
– Purpose is to benefit third persons (beneficiaries)
Land and Agricultural Bank of SA v
Parker
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Protect the weak
Safeguard the interests of the founder
Fiduciary responsibility
Rights and duties – trust deed
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Trust Property Control Act 1988
Administration
Only 27 sections
Non comprehensive act
• Def: an arrangement, through which the ownership in property of
one person is by virtue of a trust instrument made over or
bequeathed:
– To another person, the trustee, to be administered or disposed of
according to the provisions of the trust instrument for the benefit of
the beneficiary or beneficiaries as designated in the trust instrument,
or for the achievement of the object stated in the trust instrument; or
– To the beneficiaries designated in the trust instrument, which property
is placed under the control of another person, the trustee, to be
administered or disposed of according to the provisions of the trust
instrument for the benefit of the beneficiary or beneficiaries as
designated in the trust instrument, or for the achievement of the
object stated in the trust instrument.
• Ordinary Trust:
– Ownership and control of trust assets = trustees
– For estate planning, asset protection, business.
• Bewind:
– Assets = beneficiaries
– Control = trustees
• S12: trust property not part of trustee’s
personal estate except when beneficiary
COMPANIES ACT 2008
• Trust = ‘person’ ‘juristic person’
• Income Tax Act, Value Added Tax Act
• All the shares in a private company kept in
trust – company exempt from audit or
independent review
• S 40(5): shares held in trust untill services
delivered.
BUSINESS TRUST
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Ordinary trust
Trustees carrying on a business
Power to expose assets to risks
Not a breach of fiduciary duty
Land and Agricultural Bank of SA v Parker
BUSINESS TRUST
• Beneficiaries may sell, cede and otherwise
deal with their interests.
• Similarities with company and CC.
• Certificate of interest.
• Beneficiaries = limited liability.
• Trustees = personally liable.
BUSINESS TRUST
• Advantages:
• Limited liability
• Less expensive
• Disadvantages:
• May be seen as a partnership
• Beneficiaries seen as owners = third party treat
trust as bewind trust of partnership.
• Trust may be sequestrated.
PARTIES
• FOUNDER: psn (e) Who establish the trust.
• TRUSTEES: at least 1. Responsible for
administrating trust property. Act within the
law and trust deed.
• BENEFICIARIES: at least 1. psn (e) who
benefit in terms of the trust deed.
TRUST DEED
• Product of document not creature of statute.
• Contract or testament
• Land and Agricultural Bank of SA v Parker –
“constitutive charter”
TYPES
• Founder dead or alive?
• Powers of trustees and rights of beneficiaries?
• Other criteria?
• 1. Trust inter vivos v testamentary trusts
• 2. Family trusts v business trusts
• 3. Other – statutory trusts, court-order,
charitable, international trusts.
LEGAL NATURE
• Written
• Crookes v Watson: contract.
• Requirements of a contract.
• Testamentary trust = separate legal entity.
• Requirements of the Wills Act.
CONSEQUENSES
• Trustees – obligations and powers.
• Trust Property Control Act, Common Law, trust
deed.
• Beneficiaries – rights.
• Protection of rights in Act.
• Vested rights / Discretionary rights.
FORMATION
• Intention of the founder – obligation on
trustees – manage and control assets – for
benefit of beneficiary .
• Lawfull & certain purpose.
• Trust property certain.
• Beneficiaries ascertained or ascertainable.
• Trustee appointed.
AUTHORISATION
• S6(1): Authorisation by Master.
• Trustee of trust to be formed?
• Pre-incorporation contracts in Companies Act
2008.
• Independent.
DUTIES
• Statutory and common law duties.
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Act with reasonable care, diligence and skill
Open a separate trust account at a banking institution
Give effect to the terms of the trust deed
Act with the utmost good faith
Avoid exposing the assets of the trust to undue risk
Account to the beneficiaries.
Keep doc’s for 5 years
POWERS
• Source = trust deed.
• Intention of the founder.
• Business trust – extensive powers.
RIGHTS
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Must be at least 1 beneficiary.
Identified or identifiable.
Trust founder and trustee.
May dispose of or cede rights.
Test 2!!!
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40 marks
Close Corporations (36) and Trusts (4)
18 marks court cases
Leave out the following case law:
– Die Dros (Pty) Ltd v Telefon Beverages 2003 4 SA 207
C
– Schwartz v Pike 2008 3 SA 431 SCA
– Gatenby v Gatenby 1996 3 SA 118 E
– Airport Cold Storage Ltd v Ebrahim 2008 2 SA 303 C
– All the cases on Trusts