Under the terms of a private trading trust, the trust fund is used for the conduct of a business by the trustee.
Where invitations to become beneficiaries are offered to the public, a manager will conduct the business for the benefit of 'investor-beneficiaries'.
The beneficiaries of a trading trust should not exert control over the conduct of the business, or there may be a partnership between the trustees and the beneficiaries.
Since it is the trustees who carry on the business and not the "trust" (which is not a legal entity), the personal contractual liability of the trustees (except as trustees specifically limited in the business documentation) has led to the practice of having a limited liability company with nominal share capital as trustee.
In a typical structure a corporate trustees in a private trust may hold the business on a discretionary trust for a specified class of beneficiaries or on a fixed trust for unit holders who may hold units either beneficially or as trustees for others.
The conduct of a business by a trustee offers some attractive features, especially in the area of limitation of liability. Normally a trustee's liability will be liability will not extend beyond the assets of the -trust, and a special purpose trust corporation with limited liability can be employted to advantage. Ethical applications call for appropriate disclosure of the nature of the structure.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
