BUSINESS TRUSTS Chapter 17 Companies and Other Business

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 Agricultural Bank of SA v Parker • • Protect the weak Safeguard the interests of the founder Fiduciary responsibility Rights and duties – trust deed

• • 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 • S 12: 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 • • • Ordinary trust Trustees carrying on a business Power to expose assets to risks Not a breach of fiduciary duty Land 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 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 • S 6(1): Authorisation by Master. • Trustee of trust to be formed? • Pre-incorporation contracts in Companies Act 2008. • Independent.

DUTIES • Statutory and common law duties. – 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 • • Must be at least 1 beneficiary. Identified or identifiable. Trust founder and trustee. May dispose of or cede rights.

Test 2!!! • • 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