A business trust is a legal arrangement that combines the features of a trust and a business entity. It is created when a group of individuals or organizations pool their resources together for a common business purpose. The trust is managed by a trustee who holds legal title to the assets and operates the business on behalf of the beneficiaries.
One key advantage of a business trust is that it provides limited liability protection to its beneficiaries. This means that the personal assets of the beneficiaries are shielded from any business liabilities or debts incurred by the trust. Additionally, the trust structure allows for the efficient flow-through of income, avoiding double taxation at the entity level.
Business trusts can be utilized in various industries and sectors. Real estate investment trusts (REITs) are a common example, where investors pool their funds to acquire and manage income-generating properties. Infrastructure trusts, energy trusts, and shipping trusts are other examples that focus on specific sectors.
The beneficiaries of a business trust can be individual investors, institutional investors, or even other companies. They receive distributions of profits generated by the trust in proportion to their ownership or investment stake. The trust agreement outlines the rights and obligations of the beneficiaries, as well as the decision-making powers of the trustee.