The Research Of Business Trust

As a kind of ancient system, trust has been extensively used in commercial fields because of itsadvantages in financial management. By using trust to organize commercial investments and transactions,the business trust finally came into being. As a kind of tool for assets management and commercialoperation by use of trust, the business trust has become a form of enterprises similar to corporation systembut more flexible in the United States. As a result of the rising of business trust, the corporation is facingthe competition.The trust that is developed in common law system has been also used for reference and applied in thecountries where civil law system dominates. In2001, the promulgation of the Trust Law of the People’sRepublic of China formally introduced the trust system in China. From the actual development, in China,the trust system is mainly used in commercial field and the business trust system and laws and regulationssystem concerned are built primarily. However, compared with the matured business trust system in theUnited States, although the functions and frame of business trust are applied to the commercial activities,the business organization status of business trust has not confirmed in the laws, on one hand; no enoughattention is paid by the current trust legislation to the particularities of business trust and no full legislativesecurities is provided for the effective operation of business trust, on the other hand. Consequently, thereare more dilemmas in the practices of business trust in China. For this reason above, this dissertation ismainly to further understand the business trust system through discussion of the issues concerned andcontributes to improve the business trust system in China.This dissertation consists of five chapters.Chapter I mainly discusses the system foundations of business trust. Through the historical reviewingon trust, I think that trust originates from the Britain and the Britain trust system is from the “Use” designin the Middle Ages. The intervention and confirmation of “Use” design in English Equity finally introducedthe trust system. The modern evolution of trust makes it transform from the traditional transfer-custodytype into the modern management-investment type so that a chance is provided for the development of trustin commercial field. There are extensive spaces in commercial fields for the development of trust and trusthas many technical advantages such as flexibility, insolvency segregation, fiduciary duty and tax-savingwith many derivative types. The topic of this dissertation is called “business trust” in the United Stateswhere the legislative and judicial practices endue it with special meaning and business organization status.In China, business trust is not stipulated in the legislation, the introduction of business trust is only forexerting its function and the business operation and the business organizational status of business trust isnot considered, therefore, the business trust sensu stricto in the United States does not exist in China. Forthis reason, the definition of business trust is based on the academic characteristics including commerciality,commodity nature and group feature and it is argued that whether the trust principle is used and deemed as the foundation, whether it is for the purpose of commercial investment and whether the abovecharacteristics are represented during the operations will be the basic elements for determining the businesstrust, and the confirmations to above three issues will be the essential conditions to judge the business trust.Finally, in this dissertation, it is argued that business trust has the functions including assets management,capital gathering, capital transfer, enterprise operation and diversity of commodities. Moreover, as a systemdesign concerned with assets management and enterprise operation, the value of business trust is to seek forsecurity and efficiency.Chapter II discusses the lagal nature of business trust. Firstly, why it is necessary to discuss the legalnature of trust? Because the legal nature of trust dominates the attribution of trust law, and thedetermination of legal nature of trust is helpful for complementing the selection of norms and the effects oftransplantation of trust. With regard to the legal nature of trust, there are three opinions including propertytheory, contract theory and organization theory. Through the review in which the time of trust evolution isthe longitudinal axis and the differences of different trusts is the horizontal axis, it is argued in thisdissertation that the legal relations constructed by the business trust should be understood from theperspective of organization. The organizational attribution of business trust is stressed in this Chapter. Onone hand, through the empirical analysis, especially the practical investigationof the history of Americanbusiness trust, it is demonstrated that recognizing the organizational attribution of business trust is not fromthe special requirements of law but is the inevitable consequence of the development of trust in commercialfields. On the other hand, through the normative analysis, it is demonstrated that business trust has theassets partitioning function as the core attribute of enterprises, in which the affirmative assets partitioningof business trust is embodied in the independence of trust assets and the realization of insolvencysegregation and the defensive assets partitioning of business trust is embodied in the limited liabilities ofbeneficiaries. The business trust with organizational attribute challenges the status of corporation by use ofits flexibility advantage, and promotes its development by using the system advantages of corporation asreference. At present, business trust is mainly applied to the management field with current financial assetspool but not like corporation in the enterprise operation field. In addition, the determination oforganizational attribute of business trust complies with the development trend of which the commercialorganizational law devotes to realize the pluralism of business organizations.Chapter III discusses the operational mechanism of business trust. Beginning with the principal-agentissue of business organization, the principal-agent issue of business trust is analyzed. It is argued that theprincipal-agent issue of business trust may be constrained from the trustees and the beneficiaries. From theperspective of trustees, the foundational function of system which the fiduciary duty is embodied in thebusiness trust may be exerted. From the perspective of beneficiaries, through the security of rights ofbeneficiaries, the trustees may be in institutional constraints. When empowering more to the trustees,modern trust also adjusts their fiduciary duty accordingly and makes the increasingly objective, standardand actualized fiduciary duty act as the security mechanism of trust property. The differences of businesstrust and ordinary trusts cause that the application of ordinary trust law to the commercial environment will be uncertain, and therefore the United States establish the judicial and legislative rules to separately treatthe business trust and ordinary trusts. Due to the role differences of corporations and trust in capital market,their fiduciary duty are different. With regard to the duty of care, the corporations comply with businessjudgment rules and the trust adopts the reasonable person standard; with regard to the duty of loyalty, thecorporations deny the sole interest rule applied to the trusts. In the United States, both case laws and statuteconfirm that the fiduciary duty rules of directors in corporations applies to the trustees of business trusts; inCanada and Singapore, the business trust legislations build the fiduciary duty system of the trustees byemulating the fiduciary duty rules of corporation laws. With regard to the responsibility rules of trustees, inthe ordinary trust, the trustees must bear the compensation liabilities and bear external unlimited liability ifthey violate the trusts. According to the laws of the United States, if the trustees of business trusts violatethe trusts, their compensation liability will be determined mainly in accordance with the covenants in thetrust documents, and the trustees will bear the unlimited liability just like the directors of corporations. Therealization manner and actual contents of beneficiary rights of trusts are considerably limited andcharacterized with passivity and static nature. The beneficiaries of business trust have the rights ofparticipation in management, so the American laws hardly stipulate the beneficiaries’ rights of participationin management as a kind of coercive rules, but the Canadian laws stipulate as such. The beneficiaries ofbusiness trust have the remedial rights, in which the American laws covers the judicial remedial rights ofbusiness trust deadlock and the rights of beneficiaries to bring derivative action, and the Canadian lawsprovide the remedial measures such as oppressive remedies, representative actions and right to dissent. Inrespect of the external rules of beneficiaries, the beneficiaries in ordinary trusts have no liabilities but thebeneficiaries in business trusts need to bear limited liabilities. At the end of this Chapter, it is argued thatthe registration system shall be applied to the establishment, modification and termination of businesstrusts.In Chapter IV, the practices and dilemma of business trust in China are discussed. It is argued that, inChina, the practices of business trust mainly include collective investment trust scheme issued by the trustcorporations, securities investment funds issued by the fund corporations and special purpose trust as thespecial purpose vehicle in the credit assets securitization. All of them are based on the trust law relationsand characterized with commerciality, commodity nature and group feature. Their differences are thatcollective investment trust scheme and securities investment funds are investment-type trusts and specialpurpose trust is financing-type. In this Chapter, the basic principle, legislative system and practicalapplication of these three business trusts in China are discussed and the development dilemma of businesstrust system in China is pointed out. In this dissertation, it is argued that there are such problems in thepractices of business trusts in China as no enough recognizing of entity nature of business trusts,misplacement of attribution of trust property and lack of publication, offside of settlor’s power, failure ofregulation on trustee and deficiency of beneficiary protection.In Chapter V, how to improve the legislation concerned with business trust system in China isdiscussed. In this Chapter, the legislative approaches of business trusts in Canada and the United States are reviewed and the business trust legislations of the countries are compared with each other from thedimensions of legislative perspective, functional analysis and normative evaluation. The uniform legislationtrend, stressing on governance mechanism, concern with the trust advantages represented in the legislationsof the countries should be used as references in China. After that, the top design for improving the businesstrust system legislation in China is explored and it is believed that with regard to the business trustlegislation in China at present, the application of existing rules of trust law is difficult, no uniformregulation is made on special laws for trusts and Law of Trust Industry is absent, therefore, we suggest thatthe reform direction should be to change the legislative pattern, introduce the concept of business trustlegislation, and consider the legislative principle overall. Finally, the actualization approaches forimproving the business trust legislation in China, including identifying the legal entity status of businesstrust, in which the business trust may be identified as a kind of independententerprise as legal person;weakening the status of settlor in the business trusts, who is identified as the supervisor and coordinator inthe business trusts; improving the regulations on trustees, building complete and improved system of dutyof care and duty of loyalty in the respects of measurement standards and regulative nature, identifying theresponsibility rules of trustees and formulating the Law of Trust Industry based on the clear scope;strengthening the interests protection of beneficiaries, and realizing such protection through identificationof the nature of beneficiary rights, fullness of beneficiary rights and the improvement of general meeting ofbeneficiaries.