OVERVIEW OF SIGNIFICANT 2009 AMENDMENTS TO THE...
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OVERVIEW OF SIGNIFICANT 2009 AMENDMENTS TO THE DELAWARE LLC ACT, DRULPA and DRUPA* Prepared by Ellisa Opstbaum Habbart * These amendments were effective August 1, 2009.
Transcript of OVERVIEW OF SIGNIFICANT 2009 AMENDMENTS TO THE...
OVERVIEW OF SIGNIFICANT 2009 AMENDMENTS TO THE DELAWARE
LLC ACT, DRULPA and DRUPA*
Prepared by Ellisa Opstbaum Habbart
* These amendments were effective August 1, 2009.
I. LLC ACT, DRULPA and DRUPA.*
A. Jurisdiction. Amended §18-111 of the LLC Act, §17-111 of DRULPA and §15-122 of DRUPA to:
Add language to clarify that the jurisdiction of the Court of Chancery extends to actions to interpret provisions of the respective Acts and documents contemplated by the Acts.
B. Execution of Certificates. Amended §18-204(a) of the LLC Act and §15-105(c) of DRUPA to:
Add language to expressly provide that execution of a certificate of merger or consolidation where the surviving entity is the other business entity may be executed by any person authorized on behalf of such entity.
C. Certificate of Merger. Amended §18-209(c)(4) of the LLC Act, §17- 211(c)(4) of DRULPA, and §15-902(c)(4) of DRUPA to:
Permit a change of registered agent and registered office to be set forth in a certificate of merger.
* “LLC Act” refers to the Delaware Limited Liability Company Act (6 Del. C. § 18-101, et seq.), “DRULPA” refers to the Delaware Revised Uniform Limited Partnership Act (6 Del. C. § 17-101, et seq.), and “DRUPA” refers to the Delaware Revised Uniform Partnership Act (6 Del. C. § 15-101, et seq.).
D. Amendment. Amended §18-209(f) of the LLC Act, §17-211(g) of DRULPA and §15-902(g) of
DRUPA to:
Confirm the ability by merger to amend an LLC agreement, limited partnership agreement, or partnership agreement or adopt a new LLC agreement, limited partnership agreement or partnership agreement for the successor LLC, limited partnership or partnership, by the vote required under §18-209(b) of the LLC Act, §17-211(b) of DRULPA, or §15-902(b) of DRUPA, unless the LLC agreement, limited partnership agreement or partnership agreement provides otherwise.
E. Independent Legal Significance. Amended §18-1101 of the LLC Act, §17-1101 of DRULPA, and §15-1201 of DRUPA to:
Add a new subsection (h) to each such section to clarify that the corporation law doctrine of independent legal significance applies to LLCs, limited partnerships and partnerships.
II. DRUPA*
A. Statement of Qualification. Amended §§15-103(c), 15-201(a), 15-203 and 15-501 of DRUPA to:
Permit a limited liability partnership to use its statement of qualification rather than a statement of partnership existence to opt-out of the default rules provided for in those sections.
B. Execution of Certificates. Amended §15-105 (c) of DRUPA to:
Clarify that a certificate of conversion to a partnership and a certificate of partnership domestication may be execute either by at least one partner, by one or more authorized persons or by any person authorized to execute such certificate on behalf of the other entity or non-United States entity.
C. Statement of Qualification. Amended §15-106(c) of DRUPA to:
Provide that a limited liability partnership that files a statement of qualification may receive the benefits of §15-106(c) of DRUPA.
* These amendments are applicable only to DRUPA.
This document is prepared for information purposes only. Please contact Ellisa Opstbaum Habbart or James C. Strum at The Delaware Counsel Group LLP if you have specific questions regarding this information. Ms. Habbart can be reached via email at [email protected] or (302) 576-9600. The Delaware Counsel Group advises clients worldwide on Delaware corporate and alternative entity transactions. The firm’s clients range from U.S. and international law firms to businesses such as Accenture and LaSalle Bank. The Delaware Counsel Group's philosophy embodies a team methodology for clients who appreciate a relationship-based approach to legal services. Their attorneys have practiced most of their respective careers together and are well recognized for their leadership in national and international organizations including the International Bar Association (IBA), the American Bar Association (ABA) and the Delaware Bankers Association. The Delaware Counsel Group is recognized by Chambers USA as a leading law firm in Delaware Corporate/Mergers and Acquisitions law and founding partner Ellisa Opstbaum Habbart was listed as one of Delaware’s top alternative entity lawyers. The firm is rated “AV” by Martindale Hubbell. Copyright © 2009.
Ellisa Opstbaum Habbart, Esq. A. Overview
Ellisa Habbart is a founding partner of The Delaware Counsel Group LLP (the “Delaware Counsel Group”), a Delaware firm that exclusively represents Delaware corporations and alternative entities in national and international business transactions. The Delaware Counsel Group’s clients range from U.S. and international law firms to businesses such as Accenture and LaSalle Bank. Ms. Habbart is rated "AV" by Martindale-Hubbell and is included in Chambers USA as one of "America's Leading Business Lawyers" in Delaware Corporate/Mergers and Acquisitions Law. Ms. Habbart has been described in Chambers as "bright and businesslike with a dynamic presence in front of a room of people" and most recently praised by clients for her ability to "translate" the positions and preferences of the local judiciary "into advice on the best direction for [them] to take." In addition to her juris doctor and bachelor of business administration degrees, Ms. Habbart has a Masters degree in taxation.
Prior to founding The Delaware Counsel Group, Ms. Habbart was an associate (1988-1993) and partner (1993-1999) with Prickett Jones & Elliott, Wilmington, Delaware and was the Partner in Charge of the Delaware office of Stradley Ronon Stevens & Young (1999-2004).
B. Industry Leader
Conference Coordinator for the Corporate and M&A Law Committee of the International Bar Association (the “IBA”) and the former Vice-Chair of the Private Equity Subcommittee.
Member of the Executive Committee of the American Bar
Association (“ABA”) Committee on LLCs, Partnerships and Unincorporated Entities since 1995.
Chair of the ABA International Use of U.S. Business
Entities Subcommittee.
Former Chair of the ABA Subcommittee on Business Trusts, REITs and Financing Vehicles.
Along with partner Jim Strum, has participated a member
of Delaware Bar Association Committees responsible for the creation and amendment of the Delaware limited partnership, limited liability company and statutory trust acts.
ABA Advisor to the Uniform Law Commission Drafting
Committee on the Uniform Statutory Trust Entity Act. Ms. Habbart is the Co-Chair of the Delaware Bankers
Association Trust Conference Steering Committee.
C. Publications In addition to yearly national and international speaking engagements, Ms. Habbart is the co-author of the annually updated legal text “Delaware Limited Liability Companies Forms and Practice Manual” published by Datatrace and co-author of “Delaware Limited Partnership Law”, a chapter of New York Law Journal’s text “Partnership and Joint Venture Agreements.”
“The firm acts for many blue-chip investment funds, banks, finance companies and other corporate entities, mainly in the financial services industry, on issues of Delaware law, statutory trusts and financing transactions in alternative entities.” – Chambers USA 2008
Representative Work Highlights
Accenture Inc.
Engaged as Delaware counsel to assist on an array of matters involving Delaware subsidiaries and affiliates of Accenture, Inc., including the reorganization, merger, conversion, and operation of such entities and related issues such as stock options.
Bank of America Corporation/MBNA Corporation Merger Served as Delaware counsel for Bank of America Corporation in its acquisition of MBNA Corporation for $35 billion. Bank of America Corporation is one of the world’s largest financial institutions with clients in 150 countries and relationships with 97% of the US Fortune 500 companies and 79% of the Global Fortune 500. MBNA Corporation is the industry leader in credit card affinity marketing through relationships with more than 5,000 organizations, including the NFL, NEA and LL Bean. Working directly with Bank of America Corporation’s management and in-house counsel, our role required assistance in the application and approval process before the Delaware State Bank Commission.
FFBIC, Inc.
Serve as outside general counsel for FFBIC, Inc., Wachovia Corporation’s investment holding company with assets in excess of $20 billion under management. Wachovia Corporation is a diversified financial services company providing global services through more than 40 offices around the world. The firm’s role requires ongoing advice to, and interaction with, FFBIC’s Board of Directors and management with respect to applicable Delaware corporate law issues and presence at Board of Director and important committee meetings where matters affecting the Corporation’s portfolio are determined.
Lyondell – Equistar Holdings Partners
Advise on issues of Delaware law and render legal opinions to a group of lenders, including Citibank, N.A. and ABN AMRO Bank N.V., with respect to a Delaware partnership owned by affiliates of Lyondell Basell
Industries, one of the world’s largest polymers, chemicals and fuels companies, in connection with debtor-in-possession financing facilities in excess of US$8 billion.
SunTrust Delaware Trust Company Advise management of SunTrust Delaware Trust Company (“SunTrust Delaware”) on Delaware law issues, including but not limited to, governance matters. SunTrust Delaware is an affiliate of SunTrust Banks, Inc., one of the largest and strongest financial holding companies in the US with total assets of US$179 billion on March 31, 2009. Joint Stock Financial Corporation (Sistema) Provided Delaware law advice to Sistema, the largest diversified public financial corporation in Russia and the Commonwealth of Independent States, in connection with the restructuring of a Delaware limited partnership in which Sistema and its affiliates are limited partners. National Corporate Research, Ltd. (“NCR”) Advise senior management of NCR on acquisitions, operations, and the provision of independent manager services. NCR is a leading provider of corporate and alternative entity statutory representation and transaction services. The Bureau of National Affairs, Inc. (“BNA”) Advise senior management in connection with the conversion and merger of subsidiaries of BNA, the largest independent publisher of information and analysis products for professionals in business and government, with US $352 million in revenue in 2008. Eco Power Solutions (USA) Corporation Advise management on Delaware law issues and render legal opinions in connection with admission of a private equity fund as an investor and in connection with expansion efforts of Eco Power Solutions (USA) Corporation, the developer of the world's most advanced energy recovery and emission control technology. Bank of Scotland plc Advised Bank of Scotland plc, a member of the Lloyds Banking Group plc, the largest retail bank in the United Kingdom, on Delaware law and rendered opinions with respect to lending facilities for real estate investment by affiliates of AREA Property Partners, a leading international real estate fund manager.
Abbey National Treasury Services plc Provided Delaware law advice and rendered legal opinions to Abbey National Treasury Services plc, a subsidiary of Abbey National plc, one of the United Kingdom’s leading personal financial services companies and a part of the Santander Group, the third largest bank in the world by profit, in connection with the documentation of a loan facility for the purchase of the Warner House. Montagu Private Equity LLP Advise management of Montagu Private Equity LLP, a leading European mid-market private equity investor, with transactions typically involving €100 million to €1 billion, in connection with certain non-compete agreements and interests held in an investment vehicle by management executives. HSBC is a minority shareholder of Montagu. AEGON USA ; JPMorgan Chase Co. (Chase New Markets Corporation);Renewable Ventures LLC;The Bernstein Companies (Consortium America,LLC);National Trust Community Investment Corporation; AHC Community Development LLC; and Travois New Markets LLC Since 2004, we have represented the above clients in transactions relating to one or more of the following federal tax incentive programs: Low Income Housing Tax Credits ("LIHTC") Program which provides financing to develop affordable rental housing for low-income households; Renewable Energy Tax Credits which provide tax incentives for the development of clean and renewable energy sources; Federal Historic Preservation Tax Incentives ("Historic Tax Credits") which provide tax incentives to encourage the private sector to rehabilitate historic buildings to create moderate and low-income housing in historic buildings; New Market Tax Credits ("NMTC") Program which provides tax incentives for making equity investments in investment vehicles known as Community Development Entities ("CDEs"). Our role has been to advise on issues of Delaware law and render Delaware legal opinions in connection with transactions totaling in excess of US$1 billion from June 2008 to the present. An additional US$125 million in transactions is expected by the end of 2009.
UNIFORM STATUTORY TRUST ENTITY ACT
Drafted by the
NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS
and by it
APPROVED AND RECOMMENDED FOR ENACTMENT IN ALL THE STATES
at its
ANNUAL CONFERENCE MEETING IN ITS ONE-HUNDRED-AND-EIGHTEENTH YEAR
IN SANTA FE, NEW MEXICO JULY 9-16, 2009
WITHOUT PREFATORY NOTES OR COMMENTS
Copyright 2009 By
NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS
November 11, 2009
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UNIFORM STATUTORY TRUST ENTITY ACT
[ARTICLE] 1
GENERAL PROVISIONS
SECTION 101. SHORT TITLE. This [act] may be cited as the Uniform Statutory
Trust Entity Act.
SECTION 102. DEFINITIONS. In this [act]:
(1) “Beneficial owner” means the owner of a beneficial interest in a statutory trust or
foreign statutory trust.
(2) “Certificate of trust” means the record filed by the [Secretary of State] under Section
201. The term includes the record as amended or restated.
(3) “Common-law trust” means a fiduciary relationship with respect to property arising
from a manifestation of intent to create that relationship and subjecting the person that holds title
to the property to duties to deal with the property for the benefit of charity or for one or more
persons, at least one of which is not the sole trustee, whether the purpose of the trust is donative
or commercial. The term includes the type of trust known at common law as a “business trust”,
“Massachusetts trust”, or “Massachusetts business trust”.
(4) “Designated office” means:
(A) for a statutory trust, the street address that it is required to designate under
Section 201(b)(2); or
(B) for a foreign statutory trust, its principal office.
(5) “Foreign statutory trust” means a trust that is formed under the laws of a jurisdiction
other than this state which would be a statutory trust if formed under the laws of this state.
(6) “Governing instrument” means the trust instrument and certificate of trust.
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(7) “Jurisdiction”, used to refer to a political entity, means the United States, a state,
foreign country, or subdivision of a foreign country.
(8) “Person” means an individual, corporation, statutory trust, estate, partnership, limited
liability company, association, joint venture, public corporation, government or governmental
subdivision, agency, or instrumentality, or any other legal or commercial entity. The term does
not include a common-law trust.
(9) “Property” means all property, whether real, personal, or mixed, or tangible or
intangible, or any interest therein.
(10) “Qualified foreign statutory trust” means a foreign statutory trust that is registered
to do business in this state pursuant to a certificate of registration filed by the [Secretary of
State].
(11) “Record”, used as a noun, means information that is inscribed on a tangible medium
or that is stored in an electronic or other medium and is retrievable in perceivable form.
(12) “Related party”, with respect to a party that is a trustee, officer, employee, manager,
or beneficial owner, means:
(A) the spouse of the party;
(B) a child, parent, sibling, grandchild, or grandparent of the party, or the spouse
of one of them;
(C) an individual having the same residence as the party;
(D) a trust or estate of which a related party described in subparagraph (A), (B),
or (C) is a substantial beneficiary;
(E) a trust, estate, legally incapacitated individual, conservatee, or minor for
which the party is a fiduciary; or
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(F) a person that directly or indirectly controls, is controlled by, or is under
common control with, the party.
(13) “Series trust” means a statutory trust that has one or more series created under
Section 401.
(14) “Sign” means, with the present intent to authenticate or adopt a record:
(A) to execute or adopt a tangible symbol; or
(B) to attach to or logically associate with the record an electronic symbol, sound,
or process.
(15) “State” means a state of the United States, the District of Columbia, Puerto Rico,
the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction
of the United States.
(16) “Statutory trust”, except in the phrase “foreign statutory trust”, means an entity
formed under this [act].
(17) “Trust” includes a common-law trust, statutory trust, and foreign statutory trust.
(18) “Trust instrument” means a record other than the certificate of trust which provides
for the governance of the affairs of a statutory trust and the conduct of its business. The term
includes a trust agreement, a declaration of trust, and bylaws.
(19) “Trustee” means a person designated, appointed, or elected as a trustee of a
statutory trust or foreign statutory trust in accordance with the governing instrument or
applicable law.
SECTION 103. GOVERNING INSTRUMENT.
(a) Except as otherwise provided in subsection (b) or Section 104, the governing
instrument governs:
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(1) the management, affairs, and conduct of the business of a statutory trust; and
(2) the rights, interests, duties, obligations, and powers of, and the relations
among, the trustees, the beneficial owners, the statutory trust, and other persons.
(b) To the extent the governing instrument does not otherwise provide for a matter
described in subsection (a), this [act] governs the matter.
(c) The governing instrument may include one or more instruments, agreements,
declarations, bylaws, or other records and refer to or incorporate any record.
(d) The governing instrument may be amended with the approval of all the beneficial
owners.
(e) Subject to Section 104, without limiting the terms that may be included in a
governing instrument, the governing instrument may:
(1) provide the means by which beneficial ownership is determined and
evidenced;
(2) limit a beneficial owner’s right to transfer its beneficial interest;
(3) provide for one or more series under [Article] 4;
(4) to the extent that voting rights are granted under the governing instrument,
include terms relating to:
(A) notice of the date, time, place, or purpose of any meeting at which
any matter is to be voted on;
(B) waiver of notice;
(C) action by consent without a meeting;
(D) establishment of record dates;
(E) quorum requirements;
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(F) voting:
(i) in person;
(ii) by proxy;
(iii) any form of communication that creates a record, telephone,
or video conference,; or
(iv) in any other manner; or
(G) any other matter with respect to the exercise of the right to vote;
(5) provide for the creation of one or more classes of trustees, beneficial owners,
or beneficial interests having separate rights, powers, or duties;
(6) provide for any action to be taken without the vote or approval of any
particular trustee or beneficial owner, or classes of trustees, beneficial owners, or beneficial
interests, including:
(A) amendment of the governing instrument;
(B) merger, conversion, or reorganization;
(C) appointment of trustees;
(D) sale, lease, exchange, transfer, pledge, or other disposition of all or
any part of the property of the statutory trust or the property of any series thereof; and
(E) dissolution of the statutory trust;
(7) provide for the creation of a statutory trust, including the creation of a
statutory trust to which all or any part of the property, liabilities, profits, or losses of a statutory
trust may be transferred or exchanged, and for the conversion of beneficial interests in a statutory
trust, or series thereof, into beneficial interests in the new statutory trust or series thereof;
(8) provide for the appointment, election, or engagement of agents or
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independent contractors of the statutory trust or delegates of the trustees, or agents, officers,
employees, managers, committees, or other persons that may manage the business and affairs of
the statutory trust, designate their titles, and specify their rights, powers, and duties;
(9) provide rights to any person, including a person that is not a party to the
governing instrument;
(10) subject to paragraph (11), specify the manner in which the governing
instrument may be amended, including, unless waived by all persons for whose benefit the
condition or requirement was intended:
(A) a condition that a person that is not a party to the instrument must
approve the amendment for it to be effective; and
(B) a requirement that the governing instrument may be amended only as
provided in the governing instrument or as otherwise permitted by law;
(11) provide that a person may comply with paragraph (10) by a representative
authorized by the person orally, in a record, or by conduct;
(12) provide that a person becomes a beneficial owner, acquires a beneficial
interest, and is bound by the governing instrument if the person complies with the conditions for
becoming a beneficial owner set forth in the governing instrument, such as payment to the
statutory trust or to a previous beneficial owner;
(13) provide that the statutory trust or the trustees, acting for the statutory trust,
hold beneficial ownership of any income earned on securities held by the statutory trust that are
issued by any business entity formed, organized, or existing under the laws of any jurisdiction;
(14) provide for the establishment of record dates; and
(15) grant to, or withhold from, a trustee or beneficial owner, or class of trustees
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or beneficial owners, the right to vote, separately or with any or all other trustees or beneficial
owners, or class of trustees or beneficial owners, on any matter.
SECTION 104. MANDATORY RULES. The governing instrument may not:
(1) vary the requirements of [Article] 2;
(2) vary the choice of governing law under Section 301;
(3) negate the exclusion of a predominantly donative purpose under Section 303;
(4) vary the provisions pertaining to series trusts in Sections 401, 402(b), 403, and
404(c);
(5) vary the standards of conduct for trustees under Section 505, but the governing
instrument may prescribe the standards by which good faith, best interests of the statutory trust,
and care that a person in a similar position would reasonably believe appropriate under similar
circumstances are determined, if the standards are not manifestly unreasonable;
(6) restrict the nonliability under Section 506 of a trustee or other person that relies in
good faith on the terms of the governing instrument, the records of the statutory trust, or the
opinions, reports, or statements of an expert, but the governing instrument may prescribe the
standards for assessing whether the reliance was in good faith, if the standards are not manifestly
unreasonable;
(7) restrict the right of a trustee to information under Section 508, but the governing
instrument may prescribe the standards for assessing whether information is reasonably related to
the trustee’s discharge of the trustee’s duties as trustee, if the standards are not manifestly
unreasonable;
(8) vary the prohibition under Section 509 of indemnification, advancement of expenses,
or exoneration for conduct involving bad faith, willful misconduct, or reckless indifference;
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(9) vary the obligation of a trustee under Section 510(c) not to follow a direction that is
manifestly contrary to the terms of the governing instrument or would constitute a serious breach
of fiduciary duty by the trustee;
(10) restrict the right of a judgment creditor of a beneficial owner to seek a charging
order under Section 606;
(11) restrict the right of a beneficial owner to information under Section 608, but the
governing instrument may prescribe the standards for assessing whether information is
reasonably related to the beneficial owner’s ability to enforce its rights as a beneficial owner, if
the standards are not manifestly unreasonable;
(12) restrict the right of a beneficial owner to bring an action under Section 609, but the
governing instrument may subject the right to additional standards and restrictions, including a
requirement that beneficial owners owning a specified amount or type of beneficial interest,
including in a series trust an interest in the series, join in bringing the action, if the additional
standards and restrictions are not manifestly unreasonable;
(13) vary the provisions pertaining to conversion and merger in Sections 701, 704, 705,
708, and 709;
(14) vary the provisions pertaining to dissolution in Sections 801(1) and 802 through
808;
(15) vary the provisions relating to foreign statutory trusts in [Article] 9; or
(16) vary the miscellaneous provisions in [Article] 10.
SECTION 105. APPLICABILITY OF TRUST LAW. The law of this state pertaining
to common-law trusts supplements this [act]. However, a governing instrument may supersede
or modify application to the statutory trust of any law of this state pertaining to common-law
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trusts.
SECTION 106. RULE OF CONSTRUCTION.
(a) This [act] must be liberally construed to give maximum effect to the principle of
freedom of contract and to the enforceability of governing instruments.
(b) The presumption that a civil statute in derogation of the common law is construed
strictly does not apply to this [act].
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[ARTICLE] 2
FORMATION; CERTIFICATE OF TRUST AND OTHER FILINGS; PROCESS
SECTION 201. CERTIFICATE OF TRUST.
(a) To form a statutory trust, a person must deliver a certificate of trust to the [Secretary
of State] for filing.
(b) A certificate of trust must state:
(1) the name of the statutory trust, which must comply with Section 207;
(2) the street and mailing address of the designated office of the trust;
(3) the name and street and mailing address of the initial agent of the trust for
service of process; and
(4) if the trust may have one or more series, a statement to that effect.
(c) A certificate of trust may contain any term in addition to those required by subsection
(b).
(d) Subject to Section 204(c), a statutory trust is formed when a certificate of trust that
complies with subsection (b) is filed by the [Secretary of State].
(e) A filed certificate of trust, a filed statement of cancellation or change, or filed articles
of conversion or merger prevail over inconsistent terms of a trust instrument.
SECTION 202. AMENDMENT OR RESTATEMENT OF CERTIFICATE OF
TRUST; STATEMENT OF CORRECTION.
(a) To amend its certificate of trust, a statutory trust must deliver to the [Secretary of
State] for filing an amendment, articles of conversion, or articles of merger stating:
(1) the name of the trust;
(2) the date of filing of its initial certificate; and
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(3) the changes to the certificate.
(b) A trustee that knows or has reason to know that any information in a filed certificate
of trust was incorrect when the certificate was filed or has become incorrect shall promptly:
(1) cause the certificate to be amended; or
(2) deliver to the [Secretary of State] for filing a statement of correction.
(c) A restated certificate of trust must be delivered to the [Secretary of State] for filing in
the same manner as an amendment.
SECTION 203. SIGNING OF RECORDS.
(a) A record delivered by the statutory trust to the [Secretary of State] for filing pursuant
to this [act] must be signed by at least one of the trustees.
(b) Any person may sign by an attorney in fact any record filed pursuant to this [act].
SECTION 204. DELIVERY TO AND FILING OF RECORDS BY [SECRETARY
OF STATE]; EFFECTIVE TIME AND DATE.
(a) A record authorized or required to be delivered to the [Secretary of State] for filing
under this [act] must be captioned to describe the subject of the record and be in a medium
permitted by the [Secretary of State]. If all filing fees have been paid, unless the [Secretary of
State] determines that the record does not comply with the filing requirements of this [act], the
[Secretary of State] shall file the record and make available a copy of the filed record to the
person on whose behalf the record was filed.
(b) On request and payment of the required fee, the [Secretary of State] shall send to any
person a certified copy of a record filed in the office of the [Secretary of State] pursuant to this
[act].
(c) Except as otherwise provided in Sections 205 and 211, a record delivered to the
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[Secretary of State] for filing under this [act] may specify an effective time and a delayed
effective date. Except as otherwise provided in this [act], a record filed by the [Secretary of
State] is effective:
(1) if the record does not specify an effective time or delayed effective date, on
the date and at the time the record is filed as evidenced by the [Secretary of State’s] endorsement
of the date and time on the record;
(2) if the record specifies an effective time but not a delayed effective date, on
the date the record is filed at the time specified in the record;
(3) if the record specifies a delayed effective date but not an effective time, at
12:01 a.m. on the earlier of:
(A) the specified date; or
(B) the 90th day after the record is filed; or
(4) If the record specifies an effective time and a delayed effective date, at the
specified time on the earlier of:
(A) the specified date; or
(B) the 90th day after the record is filed.
SECTION 205. CORRECTING FILED RECORD.
(a) If, at the time of filing, a record contained incorrect information or was defectively or
erroneously signed, a statutory trust or qualified foreign statutory trust shall deliver to the
[Secretary of State] for filing a statement of correction to correct the record.
(b) A statement of correction under subsection (a):
(1) may not state a delayed effective date;
(2) must describe the record to be corrected, including its filing date, or attach a
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copy of the record as filed;
(3) must specify the incorrect information and the reason it is incorrect or the
manner in which the signing is defective or erroneous; and
(4) must correct the incorrect information or defective or erroneous signature.
(c) A statement of correction filed by the [Secretary of State] under subsection (a) is
effective:
(1) except as otherwise provided in paragraph (2), retroactively as of the effective
date of the record the statement corrects; or
(2) with respect to a person that relied on the uncorrected record and would be
adversely affected by the correction, when filed.
SECTION 206. CERTIFICATE OF GOOD STANDING.
(a) The [Secretary of State], on request and payment of the required fee, shall furnish to
the person making the request a certificate of good standing for a statutory trust if the records
filed in the [office of the Secretary of State] show that:
(1) the [Secretary of State] has filed a certificate of trust;
(2) all fees, taxes, and penalties due under this [act] or other law to the [Secretary
of State] have been paid;
(3) the most recent [annual] [biennial] report of the trust required by Section 213
has been filed by the [Secretary of State];
(4) a statement of cancellation or dissolution has not been filed by the [Secretary
of State]; and
(5) the [Secretary of State] has not filed a notice of administrative dissolution
under Section 806 or, if the [Secretary of State] has filed such a notice, that the [Secretary of
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State] has filed a declaration of reinstatement under Section 807.
(b) A certificate of good standing must state:
(1) the name of the trust;
(2) that the trust was formed under the laws of this state and the date of
formation; and
(3) that subsection (a) has been satisfied.
(c) Subject to any qualification stated in the certificate, a certificate of good standing
issued by the [Secretary of State] is conclusive evidence that the statutory trust is in good
standing as of the date the certificate is issued.
SECTION 207. NAME OF STATUTORY TRUST.
(a) Except as otherwise provided in subsection (c), the name of a statutory trust must be
distinguishable in the records of the [Secretary of State] from:
(1) the name of any person that is already incorporated, organized, formed, or
authorized to do business in this state; and
(2) any name reserved under Section 208 [or other state laws allowing the
reservation or registration of business names, including fictitious or assumed name statutes].
(b) The name of a statutory trust may contain the words “company”, “association”,
“club”, “foundation”, “fund”, “institute”, “society”, “union”, “syndicate”, “limited”, or “trust”,
or words or abbreviations of similar import, and may contain the name of a beneficial owner, a
trustee, or any other person.
(c) A person may apply to the [Secretary of State] to use a name that does not comply
with subsection (a). The [Secretary of State] shall authorize use of the name applied for if, as to
a conflicting name:
15
(1) the present user, registrant, or owner of the conflicting name consents in a
signed record to the use and submits an undertaking in a form satisfactory to the [Secretary of
State] to dissolve or to change the conflicting name to a name that complies with subsection (a)
and is distinguishable in the records of the [Secretary of State] from the name applied for;
(2) the applicant delivers to the [Secretary of State] a certified copy of the final
judgment of a court of competent jurisdiction establishing the applicant’s right to use in this state
the name applied for; or
(3) the applicant delivers to the [Secretary of State] proof satisfactory to the
[Secretary of State] that the present user, registrant, or owner of the conflicting name:
(A) has merged with the applicant;
(B) has been converted into the applicant; or
(C) has transferred substantially all of its property, including the
conflicting name, to the applicant.
(d) Subject to Section 906, this section applies to any foreign statutory trust that does
business in this state, has a certificate of registration to do business in this state, or has applied
for a certificate of registration.
SECTION 208. RESERVATION OF NAME.
(a) The exclusive right to the use of a name that complies with Section 207 may be
reserved by:
(1) a person intending to form a statutory trust under this [act] and to adopt the
name;
(2) a statutory trust or a qualified foreign statutory trust intending to adopt the
name;
16
(3) a foreign statutory trust intending to obtain a certificate of registration to do
business in this state and adopt the name;
(4) a person intending to organize a foreign statutory trust and intending to have
it obtain a certificate of registration to do business in this state and adopt the name;
(5) a foreign statutory trust formed under the name; or
(6) a foreign statutory trust formed under a name that does not comply with
Section 207, but the name reserved under this paragraph may differ from the foreign statutory
trust’s name only to the extent necessary to comply with Section 207.
(b) A person may apply to reserve a name under subsection (a) by delivering to the
[Secretary of State] for filing an application that states the name to be reserved and the paragraph
of subsection (a) that applies. If the [Secretary of State] finds that the name is available for use
by the applicant, the [Secretary of State] shall file a statement of name reservation and thereby
reserve the name for the exclusive use of the applicant for a 120-day period.
(c) A person that has reserved a name pursuant to subsection (b) may reserve the same
name for additional 120-day periods. A person having a current reservation for a name may not
apply for an additional 120-day period for the same name until 90 days have elapsed under the
current reservation.
(d) A person that has reserved a name under this section may deliver to the [Secretary of
State] for filing:
(1) a notice of transfer that states the reserved name, the name and street and
mailing address of some other person to which the reservation is to be transferred, and the
paragraph of subsection (a) that applies to the person; or
(2) a notice of termination of the person’s reservation.
17
SECTION 209. AGENT FOR SERVICE OF PROCESS.
(a) A statutory trust or a qualified foreign statutory trust shall designate and maintain in
this state an agent for service of process.
(b) An agent for service of process of a statutory trust or qualified foreign statutory trust
must be an individual who is a resident of this state or a person incorporated, organized, formed,
or authorized to do business in this state which maintains an office in this state.
SECTION 210. CHANGE OF DESIGNATED OFFICE OR AGENT FOR
SERVICE OF PROCESS. A statutory trust or qualified foreign statutory trust may change its
agent for service of process, the address of its agent for service of process, or its designated
office by delivering to the [Secretary of State] for filing a statement of change containing:
(1) the name of the trust;
(2) the street and mailing address of the current designated office of the trust;
(3) if the designated office is to be changed, the street and mailing address of the new
designated office;
(4) the name and street and mailing address of the current agent of the trust for service of
process; and
(5) if the current agent for service of process or an address of the agent is to be changed,
the new information.
SECTION 211. RESIGNATION OF AGENT FOR SERVICE OF PROCESS.
(a) To resign as an agent for service of process of a statutory trust or qualified foreign
statutory trust, the agent must deliver to the [Secretary of State] for filing a statement of
resignation containing:
(1) the name of the trust;
18
(2) the name of the agent; and
(3) a statement that the agent resigns as agent for service of process.
(b) A resigning agent shall transmit a copy of a statement of resignation to the designated
office of the statutory trust or qualified foreign statutory trust and a copy to the principal office if
the address of the office appears in the records of the [Secretary of State] and is different from
the address of the designated office.
(c) An agency for service of process terminates on the 31st day after the [Secretary of
State] files the statement of resignation under subsection (a).
SECTION 212. SERVICE OF PROCESS, NOTICE, OR DEMAND.
(a) An agent for service of process appointed by a statutory trust or qualified foreign
statutory trust is an agent of the trust for service of any process, notice, or demand required or
permitted by law to be served on the trust.
(b) If a statutory trust or qualified foreign statutory trust no longer has a registered agent,
or if its registered agent cannot with reasonable diligence be served, the trust may be served by
registered or certified mail, return receipt requested, at its principal office in accordance with any
applicable rules and procedures. Service is effected under this subsection at the earliest of:
(1) the date the agent for the statutory trust or qualified foreign statutory trust
receives the process, notice, or demand;
(2) the date shown on the return receipt, if signed on behalf of the trust; or
(3) five days after the process, notice, or demand is deposited with the United
States Postal Service, if correctly addressed and with sufficient postage.
(c) If process, notice, or demand cannot be served on a statutory trust or qualified foreign
statutory trust pursuant to subsection (b), service may be made by handing a copy to the
19
manager, clerk, or other individual in charge of any regular place of business or activity of the
trust if the individual served is not a plaintiff in the action.
(d) This section does not affect the right to serve process, notice, or demand in any other
manner provided by law.
SECTION 213. [ANNUAL] [BIENNIAL] REPORT FOR [SECRETARY OF
STATE].
(a) A statutory trust or qualified foreign statutory trust must deliver to the [Secretary of
State] for filing [an annual] [a biennial] report that contains the name of the trust and:
(1) for of a statutory trust:
(A) the street and mailing address of its designated office; and
(B) the name and street and mailing address of its agent for service of
process; or
(2) for a qualified foreign statutory trust:
(A) any alternate name adopted under Section 906;
(B) the name of the state or other jurisdiction of formation of the trust;
(C) the street and mailing address of its principal office and, if the laws of
the jurisdiction of formation of the trust require it to maintain an office in that jurisdiction, the
street and mailing address of that office; and
(D) the name and street and mailing address of its agent for service of
process in this state.
(b) Information in [an annual] [a biennial] report under this section must be current as of
the date the report is delivered to the [Secretary of State] for filing.
(c) The first [annual] [biennial] report under this section must be delivered to the
20
[Secretary of State] after [January 1] and before [April 1] of the year following the calendar year
in which a statutory trust was formed or a qualified foreign statutory trust was authorized to do
business in this state. The report must be delivered to the [Secretary of State] after [January 1]
and before [April 1] of each subsequent [second] calendar year.
(d) If [an annual] [a biennial] report under this section does not contain the information
required in subsection (a), the [Secretary of State] shall notify the trust promptly and return the
report to it for correction. If the report is corrected to contain the information required in
subsection (a) and is delivered to the [Secretary of State] not later than the 30th day after the date
of the notice, the report is timely delivered.
(e) If [an annual] [a biennial] report under this section contains an address of a
designated office or the name or address of an agent for service of process which differs from the
information shown in the records of the [Secretary of State] immediately before the filing, the
differing information in the report is deemed a statement of change under Section 210.
21
[ARTICLE] 3
GOVERNING LAW; AUTHORIZATION; DURATION; POWERS
SECTION 301. GOVERNING LAW. The law of this state governs:
(1) the internal affairs of a statutory trust;
(2) the liability of a beneficial owner as beneficial owner and a trustee as trustee for a
debt, obligation, or other liability of a statutory trust or a series thereof; and
(3) the enforceability of a debt, obligation, or other liability of the statutory trust or a
series thereof against the property of the trust or any series thereof.
SECTION 302. STATUTORY TRUST AS ENTITY. A statutory trust is an entity
separate from its trustees and beneficial owners.
SECTION 303. PERMISSIBLE PURPOSES.
(a) Except as otherwise provided in subsection (b), a statutory trust may have any lawful
purpose.
(b) A statutory trust may not have a predominantly donative purpose.
SECTION 304. STATUTORY TRUST SOLELY LIABLE FOR DEBT,
OBLIGATION, OR OTHER LIABILITY OF STATUTORY TRUST.
(a) A debt, obligation, or other liability of a statutory trust or series thereof is solely a
debt, obligation, or other liability of the trust or series thereof. A beneficial owner, trustee, agent
of the trust, or agent of the trustee is not personally liable, directly or indirectly, by way of
contribution or otherwise, for a debt, obligation, or other liability of the trust or series thereof
solely by reason of being or acting as a trustee, beneficial owner, agent of the trust, or agent of
the trustee.
(b) Except as otherwise provided in [Article] 4, property of a statutory trust held in the
22
name of the trust or by the trustee in the trustee’s capacity as trustee is subject to attachment and
execution to satisfy a debt, obligation, or other liability of the trust.
SECTION 305. NO CREDITOR RIGHTS IN TRUST PROPERTY. Except as
otherwise provided in Section 606, a creditor of a beneficial owner or trustee may not obtain
possession of, or otherwise exercise legal or equitable remedies with respect to, the property of a
statutory trust or any series thereof.
SECTION 306. DURATION.
(a) A statutory trust has perpetual existence.
(b) A statutory trust, or any series thereof, may not be terminated or revoked except in
accordance with this [act] or the terms of the governing instrument.
(c) The death, incapacity, dissolution, termination, or bankruptcy of a beneficial owner
or trustee does not result in the termination or dissolution of a statutory trust or any series
thereof.
(d) A statutory trust or any series thereof does not terminate because the same person is
the sole trustee and sole beneficial owner.
SECTION 307. POWER TO HOLD PROPERTY; TITLE TO TRUST
PROPERTY. A statutory trust may hold or take title to property in its own name, or in the
name of a trustee in the trustee’s capacity as trustee, whether in an active, passive, or custodial
capacity.
SECTION 308. POWER TO SUE AND BE SUED. A statutory trust may sue and be
sued in its own name.
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[ARTICLE 4]
SERIES TRUSTS
SECTION 401. STATUTORY TRUST HAVING SERIES.
(a) The governing instrument may provide for the creation by the statutory trust of one or
more series with respect to specified property of the statutory trust if:
(1) records are maintained for the series which reasonably identify the property
of the series, including by specific listing, category, type, quantity, or computational or
allocational formula or procedure, such as a percentage or share of any property, or by any other
method by which the identity of the property of the series is objectively determinable; and
(2) notice that the trust has one or more series is set forth in the certificate of trust
as required by Section 201(b)(4).
(b) A series of a statutory trust is not an entity separate from the statutory trust.
(c) A series of a statutory trust may have a separate purpose from the trust or any other
series thereof if the purpose of the series is lawful and not a predominantly donative purpose.
SECTION 402. LIABILITY OF SERIES TRUST.
(a) In a series trust:
(1) a debt, obligation, or other liability incurred or otherwise existing with respect
to the property of a particular series is enforceable against the property of the series only, and not
against the property of the trust generally or any other series thereof; and
(2) a debt, obligation, or other liability incurred or otherwise existing with respect
to the trust generally or the property of any other series thereof is not enforceable against the
property of the series.
(b) The association, disassociation, or reassociation of property of a statutory trust or a
24
series thereof to or with the trust or a series thereof, including by conversion or merger under
[Article] 7, is deemed to be a transfer between separate persons under [Uniform Fraudulent
Transfers Act or other state fraudulent transfer statute].
SECTION 403. DUTIES OF TRUSTEE IN SERIES TRUST. If there is at least one
trustee of a series trust that, in discharging its duties, is obligated to consider the interests of the
trust and all series thereof, the governing instrument may provide that one or more other trustees,
in discharging their duties, may consider only the interests of the trust or one or more series
thereof.
SECTION 404. DISSOLUTION OF SERIES.
(a) A series of a series trust may be dissolved or its property distributed without causing
the dissolution of the trust or any other series thereof.
(b) A series of a series trust is dissolved, and its activities must be wound up, on the
occurrence of an event or circumstance that the governing instrument states causes dissolution of
the series or upon the dissolution of the trust.
(c) On dissolution of a series of a series trust, the persons that under the governing
instrument are responsible for winding up the affairs of the series may cause the trust to take all
actions permitted under Section 803 and shall take actions with respect to the claims and
obligations of the series as provided in Sections 803 through 805.
(d) A person, including a trustee, that under the governing instrument is responsible for
winding up the affairs of a series of a series trust is not liable to the creditors of the dissolved
series by reason of the person’s actions in winding up the series.
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[ARTICLE 5]
TRUSTEES AND TRUST MANAGEMENT
SECTION 501. MANAGEMENT OF STATUTORY TRUST. The business and
affairs of a statutory trust must be managed by or under the authority of its trustees.
SECTION 502. TRUSTEE POWERS. A trustee may exercise:
(1) powers conferred by the governing instrument;
(2) except as limited by the governing instrument, any other powers necessary or
convenient to carry out the business and affairs of the statutory trust; and
(3) other powers conferred by this [act].
SECTION 503. ACTION BY TRUSTEES. On any matter that is to be acted on by
trustees, the following rules apply:
(1) The trustees act by majority of the trustees.
(2) The trustees may act without a meeting, without previous notice, and without a vote,
if the minimum number of trustees necessary to authorize or take the action at a meeting at
which all trustees entitled to vote thereon were present and voted consent in a signed record.
However, prompt notice of the action must be given to those trustees that did not consent.
(3) A trustee may vote in person or by proxy, but, if by proxy, the proxy must be in a
signed record.
SECTION 504. PROTECTION OF PERSON DEALING WITH TRUSTEE.
(a) A person that in good faith assists a trustee, or in good faith and for value deals with
a trustee, without knowledge that the trustee is exceeding or improperly exercising the trustee’s
power, is protected from liability as if the trustee properly exercised the power.
(b) A person that in good faith deals with a trustee need not inquire into the extent of a
26
trustee’s power or the propriety of the exercise of the power.
(c) A person that in good faith delivers property to a trustee need not ensure its proper
use.
(d) A person that in good faith and without knowledge that the trusteeship has terminated
assists a former trustee as if the former trustee were still a trustee, or in good faith and for value
deals with a former trustee as if the former trustee were still a trustee is protected from liability
as if the former trustee were still a trustee.
SECTION 505. STANDARDS OF CONDUCT FOR TRUSTEES.
(a) Subject to Section 403, in exercising the powers of trusteeship, a trustee shall act in
good faith and in a manner the trustee reasonably believes to be in the best interests of the
statutory trust.
(b) A trustee shall discharge its duties with the care that a person in a similar position
would reasonably believe appropriate under similar circumstances.
SECTION 506. GOOD-FAITH RELIANCE. A trustee, officer, employee, manager,
or committee of a statutory trust, or other person designated pursuant to Section 103(e)(8), is not
liable to the trust or to a beneficial owner for breach of any duty, including a fiduciary duty, to
the extent the breach results from good-faith reliance on:
(1) a term of the governing instrument;
(2) a record of the statutory trust; or
(3) an opinion, report, or statement of another person that the person to which the
opinion, report, or statement is made or delivered reasonably believes is within the other person’s
professional or expert competence and is made or delivered to the trustee, officer, employee,
manager, or committee of a statutory trust, or other person designated pursuant to Section
27
103(e)(8).
SECTION 507. INTERESTED TRANSACTIONS.
(a) In this section, “covered party” means a trustee, officer, employee, or manager of a
statutory trust, or a related person of a trustee, officer, employee, manager, or other person
designated pursuant to Section 103(e)(8).
(b) Subject to subsection (c), a covered party may lend money to, borrow money from,
act as a surety, guarantor, or endorser for, guarantee or assume one or more obligations of,
provide collateral for, or do other business with the statutory trust and has the same rights and
obligations with respect to those matters as a person that is not a covered party.
(c) A transaction described in subsection (b) is voidable by the statutory trust unless the
covered party shows that the transaction is fair to the trust.
SECTION 508. TRUSTEE’S RIGHT TO INFORMATION. A trustee has the right
to receive from a statutory trust or another trustee information relating to the affairs of the trust
which is reasonably related to the trustee’s discharge of the trustee’s duties as trustee. The trustee
may enforce this right by summary proceeding in the [appropriate court].
SECTION 509. INDEMNIFICATION, ADVANCEMENT, AND EXONERATION.
(a) A statutory trust may indemnify and hold harmless a trustee, beneficial owner, or
other person with respect to any claim or demand against the person by reason of the person’s
relationship with the trust if the claim or demand does not arise from the person’s bad faith,
willful misconduct, or reckless indifference.
(b) Expenses, including reasonable attorney’s fees and costs, incurred by a trustee,
beneficial owner, or other person in connection with a claim or demand against the person by
reason of the person’s relationship to a statutory trust may be paid by the trust before the final
28
disposition of the claim or demand, upon an undertaking by or on behalf of the person to repay
the trust if the person is ultimately determined not to be entitled to be indemnified under
subsection (a).
(c) A term in the governing instrument relieving or exonerating a trustee from liability is
unenforceable to the extent it relieves or exonerates the trustee from liability for conduct
involving bad faith, willful misconduct, or reckless indifference.
SECTION 510. DIRECTION OF TRUSTEES.
(a) The governing instrument may authorize any person, including a beneficial owner, to
direct a trustee or other person in the management of a statutory trust.
(b) The governing instrument may provide that neither the power to direct a trustee or
other person nor the exercise of the power by any person, including a beneficial owner, causes
the person to be a trustee or imposes on the person duties, including fiduciary duties, or liabilities
relating to these duties, to a statutory trust or beneficial owner.
(c) If the governing instrument confers on a person a power to direct actions by a trustee
or other person, the trustee or other person shall act in accordance with an exercise of the power,
unless the direction is manifestly contrary to the terms of the governing instrument or the trustee
knows or has reason to know that following the direction would constitute a serious breach of
fiduciary duty by the trustee.
SECTION 511. DELEGATION BY TRUSTEE.
(a) A trustee may delegate duties and powers. The trustee shall exercise the care a
person in a similar position would reasonably believe appropriate under similar circumstances in:
(1) selecting an agent;
(2) establishing the scope and terms of the delegation; and
29
(3) periodically reviewing the agent’s actions in order to monitor the agent’s
performance and compliance with the terms of the delegation.
(b) Subject to subsection (a), a trustee may delegate duties and powers to a co-trustee.
(c) In performing a delegated function, an agent of a trustee owes a duty to the statutory
trust to exercise reasonable care to comply with the terms of the delegation.
(d) A trustee that complies with subsection (a) is not liable to a beneficial owner or to the
statutory trust for an act or omission of the agent of the trustee to which a function was
delegated.
(e) An agent of a trustee submits to the jurisdiction of the courts of this state by
accepting a delegation of powers or duties from a trustee with respect to a claim related to the
agency.
SECTION 512. INDEPENDENT TRUSTEE IN REGISTERED INVESTMENT
COMPANY.
(a) In this section, “affiliated person” and “interested person” have the meanings set
forth in the Investment Company Act of 1940, [as amended,] 15 U.S.C. Section 80a-1 et seq. [or
any successor statute] [and any regulations issued thereunder].
(b) If a statutory trust is registered as an investment company under the Investment
Company Act of 1940, [as amended,] 15 U.S.C. Section 80a-1 et seq., [or any successor statute]
[and any regulations issued thereunder,] a trustee is an independent trustee for all purposes under
this [act] if the trustee is not an interested person of the trust. The receipt of compensation both
for service as an independent trustee of the trust and for service as an independent trustee of one
or more other investment companies managed by a single investment adviser or an affiliated
person of an investment adviser, does not affect the status of the trustee as an independent trustee
30
under this section.
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[ARTICLE] 6
BENEFICIARIES AND BENEFICIAL RIGHTS
SECTION 601. BENEFICIAL INTEREST.
(a) A beneficial interest in a statutory trust is freely transferable.
(b) A beneficial interest in a statutory trust is personal property regardless of the nature
of the property of the trust.
(c) A beneficial interest in a statutory trust is not an interest in specific property of the
statutory trust.
(d) A beneficial owner does not have a preemptive right to subscribe to any additional
issue of beneficial interests or any other interest of a statutory trust.
SECTION 602. VOTING OR CONSENT BY BENEFICIAL OWNERS. On any
matter that is to be acted on by beneficial owners, the following rules apply:
(1) The beneficial owners act by majority of the beneficial interests.
(2) The beneficial owners may take the action without a meeting, without notice, and
without a vote, if beneficial owners having at least the minimum number of votes necessary to
authorize or take the action at a meeting at which all beneficial owners entitled to vote thereon
were present and voted consent in a signed record. However, prompt notice of the action must
be given to those beneficial owners that did not consent.
(3) A beneficial owner may vote in person or by proxy, but if by proxy, the proxy must
be contained in a signed record.
SECTION 603. CONTRIBUTION BY BENEFICIAL OWNER.
(a) A contribution of a beneficial owner to a statutory trust may be in cash, property, or
services rendered or a promissory note or other obligation to contribute cash or property or to
32
perform services. A person may become a beneficial owner of a statutory trust and may receive
a beneficial interest in a statutory trust without making a contribution or being obligated to make
a contribution to the trust.
(b) A beneficial owner is liable to the statutory trust for failure to perform an obligation
to contribute cash or property or to perform services, even if the beneficial owner is unable to
perform because of death, disability, or any other reason. If a beneficial owner does not make
the required contribution of cash, property, or services, the beneficial owner is obligated, at the
option of the trust, to contribute cash equal to that part of the value of the contribution that has
not been made. This obligation is in addition to any other right, including the right to specific
performance, that the trust has against the beneficial owner under the governing instrument or
applicable law.
(c) The governing instrument may provide that a beneficial owner that fails to make a
required contribution or comply with the terms and conditions of, the governing instrument is
subject to specified penalties for or consequences of the failure, including:
(1) reduction or elimination of the defaulting beneficial owner’s proportionate
interest in the statutory trust or series thereof;
(2) subordination of the defaulting beneficial owner’s beneficial interest to that of
nondefaulting beneficial owners;
(3) forced sale or forfeiture of the defaulting beneficial owner’s beneficial
interest;
(4) imposition of an obligation to repay a loan to the statutory trust by another
beneficial owner of the amount necessary to meet the defaulting beneficial owner’s commitment;
(5) redemption or sale of the defaulting beneficial owner’s beneficial interest at a
33
value fixed by appraisal or by formula; and
(6) specific performance of an obligation under the governing instrument.
SECTION 604. DISTRIBUTION TO BENEFICIAL OWNER.
(a) When a beneficial owner becomes entitled to receive a distribution, with respect to
the distribution, the beneficial owner has the status of, and is entitled to all remedies available to,
a creditor of the statutory trust.
(b) A beneficial owner does not have a right to demand or receive a distribution from the
trust in any form other than money.
(c) The trust may distribute an asset in kind if each part of the asset is fungible with each
other part and each beneficial owner receives a percentage of the asset equal in value to the
beneficial owner’s share of the distribution.
SECTION 605. REDEMPTION OF BENEFICIAL INTEREST. A statutory trust
may acquire, by purchase, redemption, or otherwise, any beneficial interest in the trust or series
thereof. A beneficial interest acquired under this section is canceled.
SECTION 606. CHARGING ORDER.
(a) If a beneficial interest is not freely transferable by a beneficial owner so that the
transferee has all rights of the transferor, a judgment creditor of a beneficial owner may satisfy
the judgment against the beneficial owner’s beneficial interest only as provided in this section.
(b) On application by a judgment creditor of a beneficial owner, the [appropriate court]
may issue a charging order against the beneficial owner’s right to distributions from the trust for
the unsatisfied part of the judgment and:
(1) appoint a receiver of the distributions subject to the charging order, with the
power to enforce the beneficial owner’s right to a distribution; and
34
(2) make other orders necessary to give effect to the charging order.
(c) A charging order issued under subsection (b) is a lien on the beneficial owner’s right
to distributions and requires the statutory trust to pay over to the judgment creditor any
distribution that would otherwise be paid to the beneficial owner until the judgment has been
satisfied.
(d) A statutory trust or beneficial owner that is not subject to a charging order issued
under subsection (b) may pay to the judgment creditor the full amount due under the judgment
lien and thereby succeed to the rights of the judgment creditor, including the charging order.
(e) This [act] does not deprive a beneficial owner or a transferee of the beneficial interest
of any exemption applicable to the beneficial interest.
SECTION 607. TRANSACTION WITH BENEFICIAL OWNER. A beneficial
owner or related person of a beneficial owner may lend money to, borrow money from, act as a
surety, guarantor, or endorser for, guarantee or assume an obligation of, provide collateral for, or
do other business, with the statutory trust and, subject to law other than this [act], has the same
rights and obligations with respect to a matter as a person that is not a beneficial owner.
SECTION 608. BENEFICIAL OWNER’S RIGHT TO INFORMATION. A
beneficial owner has the right to receive from the statutory trust or a trustee information relating
to the affairs of a statutory trust which is reasonably related to the beneficial owner’s interest.
The beneficial owner may enforce this right by summary proceeding in the [appropriate court].
SECTION 609. ACTION BY BENEFICIAL OWNER.
(a) A beneficial owner may maintain a direct action against a statutory trust to redress an
injury sustained by, or to enforce a duty owed to, the beneficial owner if the beneficial owner can
prevail without showing an injury or breach of duty to the trust.
35
(b) A beneficial owner may maintain a derivative action to redress an injury sustained
by, or enforce a duty owed to, a statutory trust if:
(1) the beneficial owner first makes a demand on the trustees, requesting that the
trustees cause the trust to bring an action to redress the injury or enforce the right, and the
trustees do not bring the action within a reasonable time; or
(2) a demand would be futile.
(c) A derivative action on behalf of a statutory trust may be maintained only by a person
that is a beneficial owner at the time the action is commenced and:
(1) was a beneficial owner when the conduct giving rise to the action occurred; or
(2) acquired the status as a beneficial owner by operation of law or pursuant to
the terms of the governing instrument from a person that was a beneficial owner at the time of
the conduct.
(d) In a derivative action on behalf of the statutory trust, the complaint must state with
particularity:
(1) the date and content of the plaintiff’s demand and the trustees’ response to the
demand; or
(2) the reason the demand should be excused as futile.
(e) Except as otherwise provided in subsection (f):
(1) any proceeds or other benefits of a derivative action on behalf of a statutory
trust, whether by judgment or settlement, are the property of the trust and not of the plaintiff; and
(2) if the plaintiff receives any proceeds or other benefits, the plaintiff shall
immediately remit them to the trust.
(f) If a derivative action on behalf of a statutory trust is successful in whole or in part, the
36
court may award the plaintiff reasonable attorney’s fees, costs, and other expenses from the
recovery by the trust.
(g) A derivative action on behalf of a statutory trust may not be voluntarily dismissed or
settled without the court’s approval.
37
[ARTICLE] 7
CONVERSION AND MERGER
SECTION 701. DEFINITIONS. In this [article]:
(1) “Constituent organization” means an organization that is party to a merger.
(2) “Constituent statutory trust” means a constituent organization that is a statutory trust.
(3) “Converted organization” means the organization into which a converting
organization converts pursuant to Sections 702 through 705.
(4) “Converting organization” means an organization that converts into another
organization pursuant to Section 702.
(5) “Converting statutory trust” means a converting organization that is a statutory trust.
(6) “Governing law” means the law that governs an organization’s internal affairs.
(7) “Organization” means a common-law trust that does not have a predominantly
donative purpose; general partnership, including a limited liability partnership; limited
partnership, including a limited liability limited partnership; limited liability company;
corporation; or foreign statutory trust. The term includes a domestic or foreign organization
whether or not organized for profit.
(8) “Organizational documents” means the records that create an organization and
determine its internal governance and the relations among the persons that own it, have an
interest in it, or are members of it.
(9) “Surviving organization” means an organization into which one or more other
organizations are merged, whether the surviving organization preexisted the merger or was
created by the merger.
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SECTION 702. CONVERSION.
(a) An organization other than a statutory trust may convert to a statutory trust, and a
statutory trust may convert to another organization pursuant to this section and Sections 703
through 705 and a plan of conversion, if:
(1) the conversion is not prohibited by the governing law of the other
organization; and
(2) the other organization complies with its governing law in effecting the
conversion.
(b) A plan of conversion must be in a record and must include:
(1) the name and form of the organization before conversion;
(2) the name and form of the organization after conversion;
(3) the terms and conditions of the conversion, including the manner of and basis
for converting interests in the converting organization into any combination of money, interests
in the converted organization, and other consideration; and
(4) the organizational documents of the converted organization.
SECTION 703. ACTION ON PLAN OF CONVERSION BY CONVERTING
STATUTORY TRUST.
(a) A plan of conversion must be consented to by all trustees and all beneficial owners of
a converting statutory trust.
(b) A converting statutory trust may amend a plan of conversion or abandon the planned
conversion:
(1) as provided in the plan; and
(2) except as prohibited by the plan, by the same consent as was required to
39
approve the plan.
SECTION 704. FILINGS REQUIRED FOR CONVERSION; EFFECTIVE DATE.
(a) After a conversion is approved:
(1) a converting statutory trust shall deliver to the [Secretary of State] for filing
articles of conversion, which must include:
(A) a statement that the trust has been converted into another
organization;
(B) the name and form of the converting organization and the jurisdiction
of its governing law;
(C) a statement that the conversion was approved as required by this [act];
(D) a statement that the conversion is not prohibited by the governing law
of the converted organization; and
(E) if the converted organization is a foreign organization not authorized
to do business in this state, the street and mailing address of an office that the [Secretary of State]
may use for the purposes of Section 705(c); and
(2) if the converting organization is not a statutory trust, the converting
organization shall deliver to the [Secretary of State] for filing a certificate of trust, which must
include, in addition to the information required by Section 201:
(A) a statement that the trust was converted from another organization;
(B) the name and form of the converting organization and the jurisdiction
of its governing law; and
(C) a statement that the conversion was approved in a manner that
complied with the organization’s governing law.
40
(b) A conversion becomes effective when the certificate of conversion is effective as
provided in Section 204(c).
SECTION 705. EFFECT OF CONVERSION.
(a) An organization that has been converted pursuant to this [article] is for all purposes
the same organization that existed before the conversion.
(b) When a conversion under this [article] takes effect:
(1) all property owned by the converting organization remains vested in the
converted organization;
(2) all debts, obligations, and other liabilities of the converting organization,
including those existing with respect to the property of a series thereof, continue as debts,
obligations, or other liabilities of the converted organization limited to the property of any series
thereof as provided for by the plan of conversion and the governing law of the converted
organization;
(3) an action or proceeding pending by or against the converting organization
continues as if the conversion had not occurred;
(4) except as prohibited by law other than this [act], the rights, privileges,
immunities, powers, and purposes of the converting organization remain vested in the converted
organization;
(5) except as otherwise provided in the plan of conversion, the terms and
conditions of the plan of conversion take effect; and
(6) except as otherwise agreed, the conversion does not dissolve a converting
statutory trust or any series thereof for the purposes of Section 801.
(c) A converted organization that is a foreign organization consents to the jurisdiction of
41
the courts of this state to enforce any debt, obligation, or other liability for which the converting
statutory trust is liable, if, before the conversion, the converting statutory trust was subject to suit
in this state on the debt, obligation, or other liability. A converted organization that is a foreign
organization and not authorized to do business in this state may be served with process in
accordance with Section 212.
SECTION 706. MERGER.
(a) A statutory trust may merge with one or more other constituent organizations
pursuant to this section and Sections 707 through 709 and a plan of merger if:
(1) the merger is not prohibited by the governing law of any constituent
organization; and
(2) each of the other organizations complies with its governing law in effecting
the merger.
(b) A plan of merger must be in a record and must include:
(1) the name and form of each constituent organization;
(2) the name and form of the surviving organization and, if the surviving
organization is to be created by the merger, a statement to that effect;
(3) the terms and conditions of the merger, including the manner and basis for
converting or exchanging the interests in each constituent organization into any combination of
money, interests in the surviving organization, and other consideration;
(4) if the surviving organization is to be created by the merger, the surviving
organization’s organizational documents; and
(5) if the surviving organization is not to be created by the merger, any
amendments to be made by the merger to the surviving organization’s organizational documents.
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SECTION 707. ACTION ON PLAN OF MERGER BY CONSTITUENT
STATUTORY TRUST.
(a) A plan of merger must be consented to by all trustees and all beneficial owners of a
constituent statutory trust.
(b) After a merger is approved, and at any time before a filing is made under Section
708, a constituent statutory trust may amend the plan or abandon the planned merger:
(1) as provided in the plan; and
(2) except as prohibited by the plan, with the same consent as was required to
approve the plan.
SECTION 708. FILINGS REQUIRED FOR MERGER; EFFECTIVE DATE.
(a) After each constituent organization has approved a merger, articles of merger must be
signed on behalf of:
(1) each constituent statutory trust, by one or more trustees or other authorized
representative; and
(2) each other constituent organization, by an authorized representative.
(b) Articles of merger under this section must include:
(1) the name and form of each constituent organization and the jurisdiction of its
governing law;
(2) the name and form of the surviving organization, the jurisdiction of its
governing law, and, if the surviving organization is created by the merger, a statement to that
effect;
(3) if the surviving organization is to be created by the merger:
(A) if it will be a statutory trust, the trust’s certificate of trust; or
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(B) if it will be an organization other than a statutory trust, the
organizational document that creates the organization;
(4) if the surviving organization preexisted the merger, any amendments provided
for in the plan of merger for the organizational document that created the organization;
(5) a statement as to each constituent organization that the merger was approved
as required by the organization’s governing law;
(6) if the surviving organization is a foreign organization not authorized to do
business in this state, the street and mailing address of an office that the [Secretary of State] may
use for the purposes of Section 709(b); and
(7) any additional information required by the governing law of any constituent
organization.
(c) Articles of merger must be delivered to the office of the [Secretary of State] for
filing.
(d) A merger becomes effective under this [article]:
(1) if the surviving organization is a statutory trust, on the later of:
(A) filing of the articles of merger by the [Secretary of State]; or
(B) subject to Section 204(c)(2), (3), or (4), as specified in the articles of
merger; or
(2) if the surviving organization is not a statutory trust, as provided by the
governing law of the surviving organization.
SECTION 709. EFFECT OF MERGER.
(a) When a merger becomes effective:
(1) the surviving organization continues or comes into existence;
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(2) each constituent organization that merges with the surviving organization
ceases to exist as a separate organization;
(3) all property owned by each constituent organization that ceases to exist vests
in the surviving organization;
(4) all debts, obligations, and other liabilities of each constituent organization that
ceases to exist, including those existing with respect to the property of a series thereof, continue
as debts, obligations, or other liabilities of the surviving organization limited to the property
thereof as provided for by the plan of merger and the governing law of the surviving
organization;
(5) an action or proceeding pending by or against any constituent organization
that ceases to exist continues as if the merger had not occurred;
(6) except as prohibited by law other than this [act], all rights, privileges,
immunities, powers, and purposes of each constituent organization that ceases to exist vest in the
surviving organization;
(7) except as otherwise provided in the plan of merger, the terms and conditions
of the plan of merger take effect;
(8) if the surviving organization is created by the merger and:
(A) if it is a statutory trust, the certificate of trust becomes effective; or
(B) if it is an organization other than a statutory trust, the organizational
document that creates the organization becomes effective; and
(9) if the surviving organization preexisted the merger, any amendment provided
for in the articles of merger for the organizational document that created the organization
becomes effective.
45
(b) A surviving organization that is a foreign organization consents to the jurisdiction of
the courts of this state to enforce any debt, obligation, or other liability of a constituent
organization if, before the merger, the constituent organization was subject to suit in this state on
the debt, obligation, or other liability. A surviving organization that is a foreign organization not
authorized to do business in this state may be served with process in accordance with Section
212.
SECTION 710. [ARTICLE] NOT EXCLUSIVE. This [article] does not preclude an
organization from being converted or merged under law other than this [act].
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[ARTICLE] 8
DISSOLUTION AND WINDING UP
SECTION 801. EVENTS CAUSING DISSOLUTION. A statutory trust is dissolved
only by:
(1) an administrative dissolution under Section 806; or
(2) the filing of articles of dissolution under Section 802:
(A) on the occurrence of an event or circumstance that the governing instrument
states causes dissolution; or
(B) with the approval of all the beneficial owners.
SECTION 802. ARTICLES OF DISSOLUTION.
(a) If dissolution of a statutory trust is authorized under Section 801, the trust shall
deliver to the [Secretary of State] for filing articles of dissolution setting forth:
(1) the name of the trust; and
(2) the date of the dissolution.
(b) Except as otherwise provided in Section 204(c), a statutory trust is dissolved when
articles of dissolution that comply with subsection (a) are filed by the [Secretary of State].
SECTION 803. WINDING UP.
(a) A dissolved statutory trust shall wind up its activities, and the trust and each series
thereof continues after dissolution only for the purpose of its winding up.
(b) In winding up its activities, a statutory trust shall:
(1) discharge the trust’s debts, obligations, and other liabilities, settle and close
the trust’s activities, and marshal and distribute the property of the trust; and
(2) distribute any surplus property after complying with paragraph (1) to the
47
beneficial owners in proportion to their beneficial interests.
(c) In winding up its activities, a statutory trust may:
(1) preserve the trust’s activities and property as a going concern for a reasonable
time;
(2) institute, maintain, and defend actions and proceedings, whether civil,
criminal, or administrative;
(3) transfer the trust’s property;
(4) settle disputes; and
(5) perform other acts necessary or appropriate to its winding up.
(d) Trustees of a dissolved statutory trust that has disposed of claims under Section 804
or 805 are not liable for breach of duty with respect to claims against the trust that are barred or
satisfied under Section 804 or 805.
(e) The dissolution of a statutory trust does not terminate the authority of its agent for
service of process.
(f) On application of any person that shows good cause, the [appropriate court] may
appoint a person to be a receiver for a dissolved statutory trust with the power to undertake any
action that might have been done by the trust during its winding up if the action is necessary for
final settlement of the trust.
SECTION 804. NOTICE TO CLAIMANT.
(a) Except as otherwise provided in subsection (c), a dissolved statutory trust may
dispose of a known claim against it by sending notice to the claimant in a record of the
dissolution of the trust. The notice must:
(1) specify the information required to be included in the claim;
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(2) provide a mailing address to which the claim is to be sent;
(3) state the deadline for receipt of the claim, which may not be less than 120
days after the date the notice is sent to the claimant; and
(4) state that the claim will be barred if not received by the deadline.
(b) A claim against a dissolved statutory trust is barred if the requirements of subsection
(a) are met and:
(1) the claim is not received by the specified deadline; or
(2) if the claim is timely received but rejected by the trust:
(A) the trust notifies the claimant in a record that the claim is rejected and
will be barred unless the claimant commences an action against the trust to enforce the claim by
the 90th day after the claimant receives the notice; and
(B) the claimant does not commence the required action not later than the
90th day.
(c) This section does not apply to a claim based on:
(1) an event occurring after the effective date of dissolution; or
(2) a liability that on that date is unmatured or contingent.
SECTION 805. PUBLICATION OF NOTICE.
(a) A dissolved statutory trust may publish notice of its dissolution and request persons
having claims against the trust to present them in accordance with the notice.
(b) A notice under subsection (a) must:
(1) be published at least once in a newspaper of general circulation in the
[county] in this state in which the dissolved statutory trust’s principal office is located or, if it has
none in this state, in the [county] in which the trust’s designated office was last located;
49
(2) describe the information required for a claim;
(3) provide a mailing address to which the claim may be sent; and
(4) state that a claim against the trust is barred unless an action to enforce the
claim is commenced not later than [three] years after publication of the notice.
(c) If a dissolved statutory trust publishes a notice in accordance with subsection (b),
unless the claimant commences an action to enforce a claim against the trust not later than [three]
years after the publication date of the notice, the claim of each of the following claimants is
barred:
(1) a claimant that did not receive notice in a record under Section 804;
(2) a claimant whose claim was timely sent to the trust but was rejected or not
acted on; and
(3) a claimant whose claim is contingent at, or based on an event occurring after,
the effective date of dissolution.
(d) A claim not barred under this section may be enforced against undistributed property.
(e) If property of the trust has been distributed after dissolution, a claim not barred under
this section may be enforced against a beneficial owner to the extent of that beneficial owner’s
proportionate share of the property distributed to the beneficial owner after dissolution.
However, a beneficial owner’s total liability for all claims under this subsection does not exceed
the total amount of property distributed to the beneficial owner after dissolution.
SECTION 806. ADMINISTRATIVE DISSOLUTION.
(a) The [Secretary of State] may dissolve a statutory trust administratively if the trust:
(1) Is without an agent for service of process in this state for [30] days;
(2) does not file an [annual] [biennial] report not later than the 60th day after the
50
due date; or
(3) does not pay, not later than the 60th day after the due date, any fee, tax, or
penalty due to the [Secretary of State].
(b) If the [Secretary of State] determines that a ground exists for administratively
dissolving a statutory trust, the [Secretary of State] shall file a notice of dissolution and send a
copy of the notice to the trust’s agent for service of process, or if the trust does not have an agent
for service of process in this state, to the trust’s designated office. The notice must state:
(1) the effective date of the dissolution, which must be at least [60] days after the
date the [Secretary of State] sends the copy; and
(2) the reason for the dissolution.
(c) Unless a statutory trust cures the grounds for dissolution under subsection (a) stated
in the notice of dissolution before the date stated in the notice, the [Secretary of State] shall
dissolve the trust administratively by preparing, signing, and filing a declaration of dissolution
that states the grounds for dissolution. The [Secretary of State] shall send a copy of the
declaration to the trust’s agent for service of process, or if the trust does not have an agent for
service of process in this state, to the trust’s designated office.
SECTION 807. REINSTATEMENT FOLLOWING ADMINISTRATIVE
DISSOLUTION.
(a) A statutory trust that has been dissolved administratively may apply to the [Secretary
of State] for reinstatement. The application must be delivered to the [Secretary of State] for
filing and state:
(1) the name of the trust and the effective date of its dissolution;
(2) that the grounds for dissolution did not exist or have been cured; and
51
(3) that the trust’s name satisfies the requirements of Section 207.
(b) If the [Secretary of State] determines that an application under subsection (a)
contains the required information and that the information is correct, the [Secretary of State]
shall prepare a declaration of reinstatement that states this determination, sign and file the
original of the declaration of reinstatement, and send a copy to the trust’s agent for service of
process.
(c) When a reinstatement becomes effective, it relates back to for all purposes and takes
effect as of the effective date of the administrative dissolution as if the dissolution had not
occurred, except for the rights of a person arising out of an act or omission in reliance on the
dissolution before the person knew or had reason to know of the reinstatement.
SECTION 808. REVIEW OF REJECTION OF REINSTATEMENT.
(a) If the [Secretary of State] rejects a statutory trust’s application for reinstatement
following administrative dissolution, the [Secretary of State] shall send a notice that states the
reason for rejection to the trust’s agent for service of process or, if the trust does not have an
agent for service of process, to the trust’s designated office.
(b) A statutory trust may obtain review of the rejection by petitioning the [appropriate
court] to set aside the dissolution. The petition must be delivered to the [Secretary of State] and
contain a copy of the [Secretary of State’s] declaration of dissolution, the trust’s application for
reinstatement, and the [Secretary of State’s] notice of rejection.
(c) The court may order the [Secretary of State] to reinstate a dissolved statutory trust or
take other action the court considers appropriate.
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[ARTICLE] 9
FOREIGN STATUTORY TRUSTS
SECTION 901. GOVERNING LAW.
(a) The law of the jurisdiction of formation of a foreign statutory trust governs:
(1) the internal affairs of the trust;
(2) the liability of a beneficial owner as beneficial owner and trustee as trustee
for a debt, obligation, or other liability of the trust or a series thereof; and
(3) the enforceability of a debt, obligation, or other liability of the foreign
statutory trust or any series thereof against the property of the trust or series.
(b) The [Secretary of State] may not deny a foreign statutory trust a certificate of
registration because of any difference between the law of its jurisdiction of formation and the
laws of this state.
(c) A certificate of registration does not authorize a foreign statutory trust to engage in
any business or exercise any power that a statutory trust may not engage in or exercise in this
state.
SECTION 902. APPLICATION FOR CERTIFICATE OF REGISTRATION.
(a) To register to do business in this state, a foreign statutory trust may apply for a
certificate of registration to do business in this state by delivering an application to the [Secretary
of State] for filing. The application must contain:
(1) the name of the trust and, if the name does not comply with Section 207, an
alternate name adopted pursuant to Section 906(a).
(2) the name of the state or other jurisdiction of formation of the trust;
(3) the street and mailing address of the trust’s principal office and, if the laws of
53
the jurisdiction of formation of the trust require it to maintain an office in that jurisdiction, the
street and mailing address of the required office; and
(4) the name and street and mailing address of the trust’s initial agent for service
of process in this state.
(b) A foreign statutory trust shall deliver with a completed application under subsection
(a) a certificate of good standing or a record of similar import signed by the [Secretary of State]
or other official having custody of the foreign statutory trust’s publicly filed records in the state
or other jurisdiction of formation of the foreign statutory trust.
SECTION 903. ACTIVITIES NOT CONSTITUTING DOING BUSINESS.
(a) Activities of a foreign statutory trust which do not constitute doing business in this
state within the meaning of this [article] include:
(1) maintaining, defending, mediating, arbitrating, or settling an action or
proceeding;
(2) holding meetings of its trustees or carrying on any other activity concerning
its internal affairs;
(3) maintaining accounts or depositing assets in financial institutions;
(4) maintaining offices or agencies for the transfer, exchange, and registration of
the trust’s own beneficial interests or securities or maintaining trustees or depositories with
respect to those beneficial interests or securities;
(5) selling through independent contractors;
(6) soliciting or obtaining orders, whether by mail or electronic means or through
employees or agents or otherwise, if the orders require acceptance outside this state before they
become contractual obligations;
54
(7) creating or acquiring indebtedness, mortgages, or security interests in real or
personal property;
(8) securing or collecting debts or enforcing mortgages or other security interests
in property securing the debts, and holding, protecting, or maintaining property so acquired;
(9) conducting an isolated transaction that is completed by the 30th day and is not
in the course of similar transactions; and
(10) doing business in interstate commerce.
(b) This section does not apply in determining the contacts or activities that may subject
a foreign statutory trust to service of process, taxation, or regulation under law of this state other
than this [act].
(c) A person does not do business in this state solely because of being a trustee or a
beneficial owner of a foreign statutory trust that does do business in this state.
SECTION 904. FILING OF CERTIFICATE OF REGISTRATION. Unless the
[Secretary of State] determines that an application for a certificate of registration does not
comply with the filing requirements of this [act], the [Secretary of State], on payment of all filing
fees, shall file the application, prepare, sign, and file a certificate of registration to do business in
this state, and send a copy of the filed certificate, together with a receipt for the fees, to the
foreign statutory trust or its representative.
SECTION 905. CERTIFIED COPY OF CERTIFICATE OF REGISTRATION.
(a) The [Secretary of State], on request and payment of the required fee, shall furnish a
certified copy of the certificate of registration for a qualified foreign statutory trust if the records
filed in the [office of the Secretary of State] show that the [Secretary of State] has filed a
certificate of registration, has not revoked the certificate of registration, and has not filed a notice
55
of cancellation.
(b) Subject to any limitation stated in the certificate, the certified copy of the certificate
of registration issued by the [Secretary of State] to a foreign statutory trust may be relied upon as
conclusive evidence that the trust is authorized to do business in this state as of the date of the
certificate.
SECTION 906. NONCOMPLYING NAME OF FOREIGN STATUTORY TRUST.
(a) A foreign statutory trust whose name does not comply with Section 207 may not
obtain a certificate of registration until it adopts, for the purpose of doing business in this state,
an alternate name that complies with Section 207. A foreign statutory trust that adopts an
alternate name under this subsection and obtains a certificate of registration with the name need
not comply with [this state’s fictitious or assumed name statute]. After obtaining a certificate of
registration with an alternate name, a foreign statutory trust shall do business in this state under
the name unless the trust is authorized under [this states’s fictitious or assumed name statute] to
do business in this state under another name.
(b) If a qualified foreign statutory trust changes its name to one that does not comply
with Section 207, it may not thereafter do business in this state until it complies with subsection
(a) and obtains an amended certificate of registration.
SECTION 907. REVOCATION OF CERTIFICATE OF REGISTRATION.
(a) The [Secretary of State] may revoke the certificate of registration of a qualified
foreign statutory trust if the trust does not:
(1) appoint and maintain an agent for service of process;
(2) deliver for filing a statement of change not later than the 60th day after a
change has occurred in the name or address of the agent;
56
(3) file an [annual] [biennial] report pursuant to Section 213 not later than the
60th day after the due date; or
(4) pay, by the 60th day after the due date, any fee, tax, or penalty due to the
[Secretary of State].
(b) To revoke a certificate of registration of a foreign statutory trust, the [Secretary of
State] must prepare, sign, and file a notice of revocation and send a copy to the trust’s agent for
service of process in this state, or if the trust does not appoint and maintain a agent for service of
process in this state, to the trust’s designated office. The notice must state:
(1) the effective date of the revocation, which must be at least [60] days after the
date the [Secretary of State] sends the copy; and
(2) the basis for the revocation.
(c) Unless a foreign statutory trust cures the grounds for revocation under subsection (a)
stated in the notice of revocation before the date stated in the notice, the authority of the trust to
do business in this state ceases on that date.
(d) If a foreign statutory trust cures the grounds stated in the notice of revocation under
subsection (b), the [Secretary of State] shall indicate that the trust is reinstated on the filed notice.
The reinstatement of the trust relates back to for all purposes and takes effect as of the date of the
notice of revocation, except for the rights of a person arising out of an act or omission in reliance
on the dissolution before the person knew or had reason to know of the reinstatement.
SECTION 908. CANCELLATION OF CERTIFICATE OF REGISTRATION.
(a) To cancel its certificate of registration to do business in this state, a qualified foreign
statutory trust must deliver to the [Secretary of State] for filing a notice of cancellation that
states:
57
(1) the name of the trust;
(2) the date of filing of its initial certificate of registration;
(3) that the certificate of registration is being canceled; and
(4) any other information as determined by the trustee filing the statement.
(b) A certificate of registration is canceled when the notice of cancellation becomes
effective under Section 204.
SECTION 909. EFFECT OF FAILURE TO HAVE CERTIFICATE OF
REGISTRATION.
(a) A foreign statutory trust doing business in this state may not maintain an action or
proceeding in this state unless it has a certificate of registration to do business in this state.
(b) The failure of a foreign statutory trust to have a certificate of registration to do
business in this state does not impair the validity of a contract or act of the trust or preclude the
trust from defending an action or proceeding in this state.
(c) A trustee or beneficial owner of a foreign statutory trust is not liable for a debt,
obligation, or other liability of the trust solely because the trust did business in this state without
a certificate of registration.
(d) If a foreign statutory trust does business in this state without a certificate of
registration or cancels its certificate of registration, the trust may be served in accordance with
Section 212 for actions arising out of doing business in this state.
SECTION 910. ACTION BY [ATTORNEY GENERAL]. The [Attorney General]
may maintain an action to enjoin a foreign statutory trust from doing business in this state in
violation of this [article].
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[ARTICLE] 10
MISCELLANEOUS PROVISIONS
SECTION 1001. UNIFORMITY OF APPLICATION AND CONSTRUCTION. In
applying and construing this uniform act, consideration must be given to the need to promote
uniformity of the law with respect to its subject matter among states that enact it.
SECTION 1002. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL
AND NATIONAL COMMERCE ACT. This [act] modifies, limits, and supersedes the federal
Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001 et seq.,
but does not modify, limit, or supersede Section 101(c) of that act, 15 U.S.C. Section 7001(c), or
authorize electronic delivery of any of the notices described in Section 103(b) of that act, 15
U.S.C. Section 7003(b).
SECTION 1003. SAVINGS CLAUSE. This [act] does not affect an action
commenced, proceeding brought, or right accrued before this [act] takes effect.
SECTION 1004. RESERVATION OF POWER TO AMEND OR REPEAL. The
[name of state legislature] has power to amend or repeal all or part of this [act] at any time and
all statutory trusts and foreign statutory trusts subject to this [act] are governed by the
amendment or repeal.
SECTION 1005. APPLICATION TO EXISTING RELATIONSHIPS.
(a) This [act] does not limit, prohibit, or invalidate the existence, acts, or obligations of
any common-law trust created or doing business in this state before, on, or after [the effective
date of the act]. The law of this state other than this [act] pertaining to trusts apply to common-
law trusts.
(b) A common-law trust created under the law of this state before, on, or after [the
59
effective date of this [act]] that does not have a predominantly donative purpose may elect to be
governed by this [act] by filing a certificate of trust under Section 201.
[(c) A trust created pursuant to a statute of this state that was required by that statute to
file a certificate of trust with [the Secretary of State] before [the effective date of this [act]] may
elect to be governed by the provisions of this [act] by filing an amendment to its certificate of
trust under Section 202.]
[(d) On [two years after the effective date of this [act]], this [act] governs the
organization and internal affairs of all trusts created pursuant to a statute of this state that was
required by that statute to file a certificate of trust with the [Secretary of State] before the
effective date of this [act].]
SECTION 1006. REPEALS. [On [all-inclusive date], the] [The] following are
repealed:
(1) [the state Statutory Trust Act as amended and in effect immediately before [the
effective date of this [act]];
(2) [the state Business Trust Act as amended and in effect immediately before [the
effective date of this [act]]; and
(3) [the state Real Estate Investment Trust Act as amended and in effect immediately
before [the effective date of this [act]].
SECTION 1007. EFFECTIVE DATE. This [act] takes effect . . . .
If you have any questions regarding this article, please contact The Delaware Counsel Group, LLP by replying to this email or calling (302) 576-9600. This article should not be relied upon as legal advice. Copyright © 2008 The Delaware Counsel Group, LLP.
THE DELAWARE STATUTORY TRUST: An Overview
I. BACKGROUND SUMMARY OF THE STATUTORY TRUST
A. Introduction. A statutory trust (or often times referred to as a “business trust” and will be used interchangeably throughout this summary) is a form of voluntary business association created by a trust instrument pursuant to which property is conveyed to one or more trustees (or the trust itself) to hold and manage the property for the benefit of the beneficial owners. The modern business trust developed in Massachusetts to avoid a statutory provision prohibiting corporations from dealing in real estate. See Minkin v. Commissioner of Revenue, 425 Mass. 174, 680 N.E.2d 27, 30 (1997); Annot., 88 A.L.R.3d 704, 711 (1978). In State Street Trust Co. v. Hall, 31 Mass. 299, 41 N.E. 2d 30, 34 (1942) the Court stated that:
[Business trusts] have been recognized for many years as a common and
lawful method of transacting business in this Commonwealth. It has been said that this method of conducting a commercial enterprise originated in this Commonwealth as the result of the inability to secure chargers for acquiring and developing real estate without a special act of the Legislature. Accordingly, the usual purpose of these early organizations was to deal in real estate, but with passing years business trusts have greatly increased in number and have been used extensively in conducting nearly all kinds of industrial and commercial activities.
The statutory trust is structurally analogous to other business entities (corporations, limited partnerships, limited liability companies) where management and control is separated from equitable ownership. The use of the common law business trust as an alternative business entity has a long history in the United States. See J. Langbein, The Secret Life of the Trust; The Trust as an Instrument of Commerce, 107 Yale L.J. 165 (1997). Its use, however, has (and still does to an extent) present uncertainties and risks that are peculiar to trusts and trust law, including (1) the potential liability of trustees for torts and contracts of the trust; (2) common law trust principles restricting the ability of trustees to delegate powers, act beyond the terms of the trust instrument, or engage in transactions with the trust; (3) possible non-recognition of limited liability of beneficial owners, including imposition of a “control test”; (4) potential non-recognition of the business trust as an entity entitled to transact business; (5) possible restriction on ability to protect trust property from creditors of beneficial owners; and (6) unfavorable tax treatment. However, those risks have been addressed by the statutory recognition of business trusts in a number of states, including Delaware.
B. Advantage of Business Trusts. Business trusts were used to avoid some of the
governance and procedural requirements imposed on corporations by the subject State corporation statute. Essentially, the law of the business trust is drafted into the trust instrument. See J. Langbein, The Secret Life of the Trust, 107 Yale L.J. at 184. “The flexibility to eliminate governance procedures that are obligated under the corporate form has been one great attraction of the trust form. For example, the trust instrument can be drafted to dispense with routine shareholder meetings.” (citations omitted). The business trust has also been used to avoid corporate taxation or to otherwise obtain advantageous tax treatment. See e.g., Crocker v.
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Malley, 249 U.S. 223 (1919). Finally, the business trust structure could shield its owner/shareholder from personal liability. See Williams v. Inhabitants of Milton, 215 Mass. 1, 8, 102 N.E. 355 (1913). The advantages which led to the proliferation of the business trust as a form of association have been discussed at length by numerous scholarly articles. See J. Langbein, The Secret Life of the Trust, supra; Bogert, Law of Trust and Trustees, §247; Jones, The Massachusetts Business Trust and Registered Investment Companies, 13 Del. J. Corp. L. 421 (1988); C. Magruder, The Position of Shareholders in Business Trusts, 23 Column. L. Rev. 423 (1923); Comment, Massachusetts Trusts, 37 Yale L.J. 1103 (1928); N. Issacs, Trusteeship in Modern Business, 42 Harv. L. Rev. 1048 (1929).
C. Risks of Using Non-Statutory/Common Law Business Trusts. Several
jurisdictions impose a “control test” to determine shareholder liability – i.e., personal liability is imposed (and the trust is disregarded) when shareholders exercise too much control in the management of the trust. Williams v. Inhabitants of Milton, 215 Mass. 1, 102 N.E. 355 (1913); Frost v. Thompson, 219 Mass. 260, 106 N.E. 1009 (1914). Where shareholders retain control over the trustees, the common law business trust fails and shareholders will not be entitled to limited liability. The First National Bank of New Bedford v. Chartier, 305 Mass. 316, 25 N.E.2d 733 (1940). There was also a risk that other jurisdictions would not recognize a common law business trust as a separate entity or enforce its terms, including the limited liability of shareholders. See Means v. Lumpia Royalties, 115 S.W. 2d 468 (Tex. App. 1938). Common law business trusts were also not always successful at obtaining the desired tax advantages. See Morrissey v. Commissioner, 296 U.S. 344, 80 L.Ed. 263, 56 S. Ct. 289 (1935) (common law business trusts which possessed corporate attributes were held to be taxable associations rather than as property held in trust).
D. Delaware Statutory Trust Legislation. Business trust statutes have been enacted by several states, including Delaware, to eliminate many of the uncertainties associated with common law trusts. The Delaware Statutory Trust Act; 12 Del. C. §3801 et seq. (the “Delaware Act”), which was enacted in 1988, provides, among other things, that the business trust is a separate legal entity and that the personal liability of the beneficial owners are limited to the same extent as stockholders in a Delaware corporation. Under the Delaware Act, the rights, obligations and liabilities of the trustees and the beneficial owners of the trust can be varied to suit investors’ needs. The Delaware Act also allows the beneficial owners or even third parties to control the actions of the trustees or other persons authorized to manage the trust. The Delaware Act contains specific provisions that make it attractive for use by registered investment companies, including the authorization of separate series or portfolios. The Delaware Act also contains provisions that enhance the “bankruptcy remote” qualities of a business trust, including limitations on the ability of beneficial owners to trigger dissolution and limitations on the rights of creditors of beneficial owners. In 2002, the legislative amendments to the statute changed the title and all references to “business trusts” within the Delaware Act to “statutory trusts” to avoid any implication that a trust formed under the Delaware Act constitutes a ‘business trust” under Bankruptcy Code definitions.
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II. COMMON CURRENT USES OF BUSINESS TRUSTS.
A. Asset-Backed Securities Transactions. B. Collateralized Mortgage Obligations (CMOs and REMICs).
C. Real Estate Investment Trusts (REITS).
D. Leveraged Leasing Transactions.
E. Mutual Funds and Investment Companies.
F. Liquidating Trusts.
G. Private Investment Funds, Joint Ventures and Strategic Alliances.
H. Trust Preferred Securities Transactions.
III. SUMMARY OF DELAWARE LEGISLATIVE DEVELOPMENTS.
As mentioned above, the Delaware Act was enacted in 1988 to codify the organizational rules applicable to the “business trust” and to authorize a statutorily recognized flexible alternative business entity. The legislative synopsis to the 1988 statute provides:
This bill statutorily recognized common law trusts created for business purposes as the State of Massachusetts did many years ago. A business trust is the favored form of entity for money market mutual funds, and for real estate investment trusts, and other investment entities involved in the securitization of debt.
Senate Bill No. 355, 66 Del. Laws Ch. 279 (1988); See Nakahara v. The NS 1991 American Trust, Del. Ch., C.A. No. 15905, Chandler, C. (March 20, 1998) slip. op. at 17-18 (“The principal purpose of the [Delaware Act] was to statutorily recognize the existence of the business trust in Delaware, a business form that was implicitly recognized by the statutory laws of the State [of Delaware]”).
The Delaware Act has been and continues to be periodically amended in order to
accommodate developments in common business practices. The Delaware Act has been amended in 1990, 1991, 1992, 1996, 1998, 2000, 2002, 2004 and 2006.
Prior to 1998, business trusts were generally recognized under Delaware law although the
law applicable to such entities was not entirely clear. Several statutes in the Delaware Code included the term “business trust” in definitions of “person” or “organization.” Two reported Delaware cases discussed, to some degree, the existence and operations of business trusts. In Saminsky v. Abbott, Del. Ch., 185 A.2d 765 (1961) shareholders of an investment company governed by the Investment Company Act and organized as a common law business trust sued
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the trustees for excessive recurrent charges and management fees. The court, finding that business trusts are more analogous to corporations than personal trusts, held that the corporate law doctrine prohibiting payment of compensation amounting to waste was applicable to common law business trusts. In Commonwealth Trust Co. v. Capital Retirement Plan, Del. Ch., 54 A.2d 739 (1947), the Court held that a trustee (who, under the trust indenture, had sole authority to manage the trust) was not entitled to receive monthly payments required under the trust indenture where the trustee failed to participate in management of the trust or to provide the required services. The 1988 senate bill expressly provided that the Delaware Act would have no effect on the existence or validity of common law business trusts created before or after the effective date of the statute and that common law business trusts could elect to be governed by the Delaware Act by filing a certificate of trust. 66 Del. Laws Ch. 279, §2 (1988).
For detailed discussion of business trust statutes and various characteristics of business
trust, see Bogert, The Law of Trusts & Trustees, §247 (Rev. 2d 3d. 1992); Annotation, Massachusetts or business trusts, 156 A.L.R. 22 (1945); Annotation, Modern Status of the Massachusetts or Business Trust, 88 A.L.R. 3d 704 (1978).
IV. GENERAL STATUTORY PROVISIONS GOVERNING STATUTORY
TRUSTS.
A. Definitions.
1. Statutory Trust. The statutory definition of “Statutory Trust” generally incorporates the common law concept and the modern requirements of a written instrument and the filing of a document with the secretary of state. The Delaware Act, for example, provides at §3801(a):
“Statutory trust” means an unincorporated association which: (1) Is created by a governing instrument under which property is or will be held, managed, administered, controlled, invested, reinvested and/or operated, or business or professional activities for profit are carried on or will be carried on, by a trustee or trustees or as otherwise provided in the governing instrument for the benefit of such person or persons as are or may become beneficial owners or as otherwise provided in the governing instrument, including but not limited to a trust of the type known at common law as a "business trust," or "Massachusetts trust," or a trust qualifying as a real estate investment trust under § 856 et seq. of the United States Internal Revenue Code of 1986 [26 U.S.C. § 856 et seq.|, as amended, or under any successor provision, or a trust qualifying as a real estate mortgage investment conduit under § 860D of the United States Internal Revenue Code of 1986 ›26 U.S.C. § 860D], as amended, or under any successor provision; and (2) Files a certificate of trust pursuant to § 3810 of this title.
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Any such association heretofore or hereafter organized shall be a statutory trust and a separate legal entity. The term "statutory trust" shall be deemed to include each trust formed under this chapter prior to September 1, 2002, as a "business trust" (as such term was then defined in this subsection). A statutory trust may be organized to carry on any lawful business or activity, whether or not conducted for profit, and/or for any of the purposes referred to in paragraph (a)(1) of this section (including, without limitation, for the purpose of holding or otherwise taking title to property, whether in an active or custodial capacity). Neither use of the designation "business trust" nor a statement in a certificate of trust or governing instrument executed prior to September 1, 2002, to the effect that the trust formed thereby is or will qualify as a Delaware business trust within the meaning of or pursuant to this chapter, shall create a presumption or an inference that the trust so formed is a "business trust" for purposes of Title 11 of the United States Code.
The 2006 legislative amendments to the Delaware Act clarified that a statutory trust “shall be a separate legal entity, the existence of which as a separate legal entity shall continue until cancellation of the statutory trust’s certificate of trust.” 12 Del. C. § 3810(a).
2. Governing Instrument. Under the Delaware Act, a governing instrument is defined as any “any instrument (whether referred to as a trust agreement, declaration of trust or otherwise) which creates a statutory trust or provides for the governance” of its business and affairs. 12 Del. C. §3801(f). The Delaware Act further provides that the governing instrument may consist of one or more documents, including bylaws, and may contain any provision that is not inconsistent with law or the certificate of trust. Id. The 2000 legislative amendments clarified that the governing instrument many consist of separate instruments – one instrument that creates the statutory trust and one or more others that govern its internal affairs. The 2002 legislative amendments clarified that a statutory trust is not required to execute the governing document and is bound by it whether or not the governing document is executed. Id. The 2006 legislative amendments confirm that beneficial owners and trustees are also bound by the governing instrument regardless of whether they sign them. Id.
3. Beneficial Owner. The Delaware Act defines a beneficial owner as “any owner of a beneficial interest in a statutory trust, the fact of ownership to be determined and evidenced (whether by means of registration, the issuance of certificates or otherwise) in conformity to the applicable provisions of the governing instrument of the statutory trust.” 12 Del. C. §3801(b). Thus, a statutory trust is not required to issue certificates evidencing beneficial interests.
4. Trustee. The Delaware Act defines trustee as “the person or persons appointed as a trustee in accordance with the governing instrument of a statutory trust, and may include the beneficial owners or any of them.” 12 Del. C. §3801(c). The defined term “person” is broadly defined to include entities as well as natural persons. 12 Del. C. §3801(d).
B. Formation. Similar to most limited partnership and limited liability company statutes, the Delaware Act provides that a statutory trust is “formed” at the effective time of the
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filing of the initial certificate of trust. 12 Del. C. §3810(a)(2). Section 3810(a)(2) was added to the Delaware Act in the 1996 amendments.
1. Certificates of Trust. A Delaware statutory trust must file a certificate of trust with the Delaware Secretary of State, setting forth the following required information: (i) the name of the statutory trust and (ii) the name and address of the Delaware resident trustee (or trustees). 12 Del. C. §3810(a). The certificate of trust may also contain any information that the parties desire including, for example, a future effective date provision, provisions respecting the internal management of the business trust, and provisions, authorized by 12 Del.C. §3804(a), that provide for limitation of liabilities among series or portfolios of the statutory trust. Unless the certificate contains a future effective date provision, it is effective when filed. The certificate of trust must be executed by all of the trustees of the statutory trust. 12 Del.C. §3811(a).
2. Delaware Resident Trustee. At least one trustee of a Delaware business
trust must be a resident of Delaware, or if a non-natural person, it must have its principal place of business in Delaware. 12 Del. C. §3807. However, if a statutory trust is, becomes or will become a registered investment company under the Investment Company Act of 1940, it is not required to have a resident Delaware trustee so long as such statutory trust has and maintains in Delaware a registered office, which may but need not be its place of business in the state and a registered agent for service of process on the statutory trust. 12 Del. C. §3807(b) and (c).
3. Certificates of Amendment. The certificate of trust may be amended at any time by the filing of a certificate of amendment with the Delaware Secretary of State and must be amended if information set forth therein changes rendering the certificate materially false. 12 Del. C. §3810(b). The authority of trustees to amend the certificate may be made subject to requirements set forth in the certificate of trust or the governing instrument, such as a requirement for prior approval by the beneficial owners. A certificate of amendment must be executed by at least one trustee. 12 Del. C. §3811(a)(2).
4. Restated Certificate of Trust. The certificate on file with the Secretary of State may be integrated into one restated certificate of trust at any time for any purpose as the trustees may determine. Such certificate must set forth the following: the present name of the statutory trust and the name under which the statutory trust was originally formed if such name has been changed, the date of the filing of the original certificate of trust, and the information required to be included in a certificate of trust. 12 Del. C. §3810(c). A restated certificate must be executed by at least one trustee. 12 Del. C. §3811(a)(2).
5. Certificates of Correction. The Delaware Act permits the correction of any certificate filed with the Secretary of State which “is an inaccurate record of the action therein referred to, or was defectively or erroneously executed.” 12 Del. C. §3810(e). A certificate of correction, which must be signed by at least one of the trustees, shall be effective as of the date of filing of the original certificate that is being corrected, except as to those persons who are substantially and adversely affected by the correction. 12 Del. C. §§3810(e) and 3811(a).
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6. Certificate of Cancellation. The certificate of trust of a statutory trust must be canceled by the filing of a certificate of cancellation upon the completion of winding up of the trust’s business. 12 Del. C. §3810(d). The filing of a certificate of cancellation terminates the separate legal existence of the statutory trust. It must be executed by all of the trustees unless otherwise provided in the governing instrument. 12 Del. C. §3811(a)(3).
7. Execution and Filing of Certificates. Trustees who execute certificates are deemed to swear or affirm, subject to penalties for perjury, that the facts stated in the certificates are true. 12 Del. C. §3811(c). The Delaware Act also permits any person, including a trustee, to execute any certificate or governing instrument by an agent or attorney-in-fact. 12 Del. C. §3811(b). Signatures on Delaware certificates may be by facsimile and certificates may be filed by electronic transmission. 12 Del. C. §3812(e). Under the Delaware Act, a filing fee of $200 must be paid at the time of the filing of any certificate and no filing is effective until such fee is paid. 12 Del. C. §§3812(c) and 3813.
8. Use of Names Regulated. The name of a statutory trust set forth on the certificate of trust must distinguish the trust from the name of any domestic or foreign corporation, partnership, limited partnership, limited liability company or statutory trust reserved or registered with the Delaware Secretary of State, unless the written consent of the previously registered entity is obtained and filed with the Secretary of State. 12 Del. C. §3814. The name of a statutory trust may contain the name of a beneficial owner or trustee.
C. Contributions by Beneficial Owners.
1. Form of Contribution. Under the Delaware Act, beneficial owners can contribute any form of property to a statutory trust in exchange for its beneficial interest. Moreover, a person may become a beneficial owner or receive a beneficial interest in the statutory trust without making any contribution. 12 Del. C. §3802(a).
2. Enforcement of Contribution Obligation. Except as provided in the trust instrument, a beneficial owner is obligated to the statutory trust to perform any promise to contribute to the trust, despite inability to perform because of death, disability or any other reason. If a beneficial owner fails to make a required contribution of property or services, it is obligated at the option of the statutory trust to contribute cash equal to the contribution not made. 12 Del. C. §3802(b). The governing instrument can provide for any type of penalty against the interest of a beneficial owner who fails to make a required contribution. 12 Del. C. §3802(c).
D. Liability of Beneficial Owners and Trustees.
1. Beneficiaries. The modern business trust statutes reject the “control test” that would impose liability on beneficial owners who exert “control” over the trustees or the management of the trust. Under the Delaware Act, for example, except as otherwise provided in the trust’s governing instrument, the beneficial owners have the same limitation of personal liability as stockholders of a Delaware corporation. 12 Del. C. §3803(a). Under the Delaware corporate law, shareholder liability for corporate obligations is limited to the shareholder’s investment in the corporation. 8 Del. C. §102(b)(6) (“…the stockholders or members of a
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corporation shall not be personally liable for the payment of the corporation’s debts except as they may be liable by reason of their own conduct or acts.”). Moreover, the Delaware Act expressly permits the beneficial owners to participate in the management of the trust without being deemed trustees or otherwise losing the limited liability that attaches to the status as a beneficial owner. See 12 Del. C. §3801(c) and 3806(a).
2. Trustees. Under common law, trustees of business trusts, like trustees of
personal trusts, were generally liable for obligations of the trust. Trustee liability was addressed by inserting exculpatory provisions in the governing instrument and, more importantly, in contracts between the trust and third parties. The modern statutes eliminate this concern by providing that trustees are not liable for the statutory trust’s obligations. Under the Delaware Act, a trustee is not personally liable to any person, other than to the statutory trust or a beneficial owner, for actions taken while acting in the capacity of trustee. 12 Del. C. §3803(b). With respect to fiduciary duties and liabilities among trustees, the trust and beneficial owners, the statute provides that (1) the trustees will not be liable to the trust or beneficiaries for acts taken in good faith reliance on the provisions of the governing instrument and (2) the fiduciary obligations and liabilities of a trustee may be varied or eliminated by the governing instrument of the trust. 12 Del. C. §3806(c). The implied covenant of good faith and fair dealing in the governing instrument may not be eliminated. Id.
3. Other Persons. Since the Delaware Act permits management authority to
be vested in or delegated to persons other than trustees, the Delaware Act provides that officers, employees, managers or other persons who may manage the business and affairs of the statutory trust (pursuant to §3806(b)(7) of the Delaware Act) are not personally liable to any person, other than to the statutory trust or a beneficial owner, for actions taken while acting in such capacity. 12 Del. C. §3803(c). Like trustees, manager and officers will have limited liability for good faith actions in reliance on the governing instrument. 12 Del. C. §3806(d).
E. Rights of Beneficial Owners in Trust Property.
1. Nature of Beneficial Interest. Under the Delaware Act, except as provided in the governing instrument, a beneficial owner has an undivided beneficial interest in trust property and “shall share in the profits and losses of the statutory trust in the proportion (expressed as a percentage) of the entire undivided beneficial interest in the statutory trust owned by such beneficial owner.” 12 Del. C. §3805(a). The beneficial interest is personal property and a beneficial owner has no interest in specific trust property. 12 Del. C. §3805(c). The governing instrument of a statutory trust may authorize an unlimited number of shares. See Nakahara v. The NS 1991 American Trust, Del. Ch., C.A. No. 15905, Chandler, C. (March 20, 1998) slip op. at 26 n. 67. Unless otherwise provided in the governing instrument, beneficial interests are freely transferable. 12 Del.C. §3805(d). Once a beneficial owner becomes entitled to a distribution, he or she obtains the status of creditor of the statutory trust with respect to the distribution, except if the governing instrument provides otherwise. 12 Del. C. §3805(e).
2. Rights of Creditors. The Delaware Act expressly provides that “[n]o
creditor of the beneficial owner shall have any right to obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the property of the statutory trust.” 12 Del.
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C. §3805(b). The title to trust property may be vested in one or more trustees, but shall not be subject to claims against the trustee which are unrelated to the statutory trust.
F. Management of Statutory Trust. The statutory provisions addressing management of statutory trusts are very flexible and generally defer to the right of the parties to the governing instrument to draft governance provisions appropriate for their needs. This carries on the practice relating to common law business trusts which recognized that the governing instrument essentially established the “law of the entity.” See J. Langbein, The Secret Life of the Trust, supra. The Delaware Act at §3806 provides that, except as otherwise provided in the governing instrument, the business and affairs of a statutory trust shall be managed by or under the direction of its trustee. Moreover, with respect to organizational structure, the Delaware Act permits the governing instrument to create classes or groups of beneficial owners, classes or groups of trustees, separate series or portfolios of the statutory trust, and classes of interests within series. Voting rights and management rights may be granted or denied to any such group or class of beneficial owners or trustees. The 2006 legislative amendments confirm that meetings may be held by telephonic or other communications.
1. Power to Direct the Trustee. To the extent provided in the governing instrument, any person (including a beneficial owner) may direct trustees or other persons in the management of the statutory trust. Under §3806(a) neither the power to give direction nor the exercise thereof by any person (including the beneficial owner) shall cause such person to be a trustee. The 1998 amendments to the Delaware Act clarified that there is the contractual power to direct the management of the trust and that such power does not necessarily result in the imposition of fiduciary or other duties on the person exercising such power.
2. Power to Delegate. The governing instrument of a Delaware statutory trust may provide for the appointment, election or engagement, either as agents or independent contractors of the statutory trust or as delegatees of the trustees, as officers, employees, managers or other persons who may manage the business and affairs of the statutory trust and may have such titles and such relative rights, powers and duties as the governing instrument shall provide. 12 Del. C. §3806(b)(7). Delegating management authority to a person other than the trustee has been recognized for common law business trusts. See Commonwealth Trust Co. v. Capital Retirement Plan. Del. Ch., 54 A.2d 739 (1947) (trustor retained management power over the trust property). The 2004 legislative amendments clarified that the trust agreement “may provide rights to any person, including a person who is not a party to the governing trust, to the extent set forth therein.” §3806(b)(8).
3. Series or Portfolios. The Delaware Act permits the governing instrument to establish separate series of the trust which may each have its own investment objective or purpose, beneficial interests, trustees, managers, assets and liabilities. 12 Del. C. §3806(b)(2). The Delaware Act also provides that the debts and liabilities of a series will be enforceable against the assets of that series only and not against the trust’s general assets or the assets of any other series so long as (1) the governing instrument so provides, (2) the certificate of trust sets forth the limitation of interseries liability, and (3) separate and distinct records are maintained for each series and the assets of each series are accounted for separately from the other assets of the trust or any other series thereof. In addition, unless otherwise provided in the governing
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instrument, none of the trust’s general debts and liabilities or the debts and liabilities of any other series will be enforceable against the assets of such series. 12 Del. C. §3804(a). The 1998 amendments to the Delaware Act further clarified that the dissolution and winding up of a series will not trigger the dissolution of the trust. 12 Del. C. §3808(f).
4. Treasury Interests. In 1996, a section was added to the Delaware Act that expressly provided that a statutory trust may redeem or repurchase its beneficial interests and that such repurchased interests will be deemed cancelled, unless otherwise provided in the governing instrument. 12 Del. C. §3818.
5. Information Rights. Also in 1996, Section 3819 was added to the Delaware Act to provide for information and inspection rights for beneficial owners similar to the inspection rights of corporate shareholders, limited partners of limited partnerships and members of limited liability companies. See 8 Del. C. §220; 6 Del. C. §§17-305 and 18-305. Unlike the corporate provision, however, the Delaware Act permits the governing instrument to limit or completely restrict the rights of beneficial owners to inspect the books and records of the trust (subject only to public policy and securities laws requirements).
G. Existence and Dissolution of Statutory Trusts.
1. Dissolution by Beneficial Owner. A concern with respect to common law business trusts is the ability of a settlor or a beneficial owner (or a creditor of a beneficial owner) to terminate the trust and gain access to the trust property. Under common law, a beneficial owner does not generally have authority to cause or compel the dissolution of a business trust. State Street Trust Co. v. Hall, 311 Mass. 299, 41 E.E. 2d 30 (1942); But see Papale-Keefe v. Altomare, 38 Mass. App. Ct. 308, 647 N.E.2d 722, 727 (1995) (sole beneficial owner of a Massachusetts business trust was authorized to terminate the trust). The Delaware Act provides that, except as provided for in the governing instrument, the statutory trust shall have perpetual existence, and a statutory trust may not be terminated or revoked by a beneficial owner or other person except in accordance with the terms of its governing instrument. 12 Del. C. §3808(a). Moreover, the death, incapacity, dissolution, termination or bankruptcy of a beneficial owner will not cause termination of a Delaware statutory trust. 12 Del. C. §3808(b). The 2006 legislative amendments set forth that the existence of a statutory trust that has encountered an event of dissolution under its governing instrument may be continued by the unanimous vote of beneficial interest holders.
2. Dissolution and Winding Up of a Statutory Trust. The Delaware Act,
as amended in 1996, provides for dissolution procedures analogous to dissolution procedures for limited partnerships and limited liability companies. The Delaware Act does not provide any specific events of dissolution but instead leaves it entirely up to the governing instrument to provide dissolution events. 12 Del. C. §3808(a), (b) and (c). The Delaware Act does require that a person designated in the governing instrument wind up the affairs of the trust. 12 Del.C. §3808(d). The Delaware Act also requires that all current, contingent and unmatured claims and liabilities be paid in full or provided for prior to any distribution to beneficial owners. 12 Del.C. §3808(e). A trustee who complies with Section 3808(e) will not be liable to claimants of the dissolved statutory trust by reason of the trustee’s actions in winding up the trust. Id. The 1998
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Amendments to the Delaware Act require that the winding up of dissolved series must follow the same requirements to satisfy claims prior to distributing assets to beneficial owners of such series. 12 Del. C. §3808(g).
H. Applicability of Trust Law. Traditional trust principles are generally applicable to common law business trusts. See Papale-Keefe v. Altomare, 38 Mass. App. Ct. 308, 647 N.E.2d 722, 726 (1995). Under the Delaware Act, Delaware common law trust principles will apply to Delaware statutory trusts to the extent not otherwise provided in the governing instrument or the Act. 12 Del. C. §3809. However, notwithstanding this provision, it is likely that corporation law fiduciary concepts (as opposed to potentially more stringent trust law) will apply, at least by analogy, to trustees of statutory trusts that are structured similarly to corporations. See Richardson v. Clark, 372 Mass. 859, 861-862, 364 N.E.2d 804 (1977) (“Business trusts possess many of the attributes of corporations and for that reason cannot be governed solely by the rules which have evolved for traditional trusts.”); Saminsky v. Abbott, Del. Ch., 185 A2d 765 (1961). Also, several other business trust statutes provide that corporate law will govern the affairs of the business trust. See Indiana Code Ann. §23-5-1-9 (1998); Kansas Stat. Ann. §17-2035 (1997). The 2006 legislative amendments set forth that a governing instrument may not eliminate the implied contractual covenant of good faith and fair dealing.
I. Merger and Consolidation; Conversions.
1. Merger. The Delaware Act provides that a statutory trust may merge or consolidate with another business entity under the laws of Delaware or any other jurisdiction. 12 Del. C. §3815. Unless otherwise provided in the governing instrument, all trustees and all beneficial owners must approve a merger. In order to effect a merger, the statutory trust must enter into a merger agreement with the constituent entities to the merger and file a certificate of merger or consolidation with the Secretary of State. The Certificate of Merger must set forth the name and jurisdiction of the merging entities and the name of the surviving entity, that an agreement of merger or consolidation has been executed, that it is on file at the place of business of the surviving entity and that it will be furnished to any interested person. If no Delaware entity survives, the Certificate of Merger must also include the surviving entity’s consent to process, an appointment of the Secretary of State as agent and an address to which the Secretary may mail a copy of such process. The agreement of merger or consolidation may effect any amendment to the governing instrument or adoption of a new governing instrument if a statutory trust is the surviving entity. The 2004 Amendments added a new paragraph (4) clarifying that a name change to the surviving trust due to a merger is effected by the merger. §3815(b)(4). In addition, the 2004 Amendments provide that no further action is needed to amend a certificate of trust when a certificate of merger sets forth any amendment in accordance with the new §3815(b)(4). 12 Del. C. §3815(e).
2. Conversions. The 2004 legislative amendments provided for a new §3821 that sets forth the conversion process of a statutory trust to another business entity, Delaware or non-Delaware. The legislation sets forth the filing process, and the rights, obligations and liabilities associated with the conversion of the existing statutory trust.
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J. Legal Proceedings.
1. Process and Jurisdiction. Common law business trusts are generally
treated as distinct legal entities for purposes of suit. See Great Bay Hotel & Casino, Inc. v. The City of Atlantic City, 624 A.2d 102, 105 (N.J. Super. 1993). Under the Delaware Act, a statutory trust may sue and be sued for debts, obligations or liabilities incurred by trustees or their agents. 12 Del. C. §3804(a). Service of process in Delaware on the trust can be effected by serving the Delaware resident trustee or, if the trust is a registered investment company under the Investment Company Act of 1940 (the “1940 Act”), by serving the trust’s registered agent in Delaware. 12 Del. C. §3804(b). A person shall not be deemed to be doing business in Delaware solely by reason of being a beneficial owner or trustee of a domestic statutory trust or a foreign statutory trust. 12 Del. C. § 3863(b). However, Section 3863, which also identifies activities not constituting doing business in Delaware, does not apply to determining whether a foreign statutory trust is subject to service of process. 12 Del. C. § 3683(c). Finally, a governing instrument may subject a trustee to the non-exclusive jurisdiction of any state or the exclusive jurisdiction of the courts of the State of Delaware.
2. Derivative Actions. The beneficial owners have a right to bring an action
in the right of the statutory trust if trustees with authority to do so, refuse to bring the action or efforts to cause the trustees to bring the action are unlikely to succeed. The Delaware Act imposes the requirement that the plaintiff must be a beneficial owner at the time of bringing the action and the time of the transaction of which he or she complains. 12 Del. C. §3816. The complaint must set forth the efforts taken to compel the trustees to bring the action or the reason for not taking such efforts. The requirements are derived from Delaware statutory and case law respecting corporate shareholder derivative actions. See 8 Del. C. §327. Unlike Delaware corporate law, however, the Delaware Act authorizes the governing instrument to impose standards or restrictions on the bringing of a derivative action, such as requiring that a minimum percentage of beneficial owners must join in bringing a derivative action. 12 Del. C. §3816(e).
The 2000 legislative amendments clarified that with respect to a statutory trust that is an investment company under the 1940 Act, the determination of whether a trustee is independent and disinterested will be made in accordance with the 1940 Act.
K. Indemnification. The Delaware Act provides that, subject to any restrictions in
the governing instrument, the statutory trust may indemnify any trustee, beneficial owner or other person from and against any and all claims and that the absence of an indemnity provision in the governing instrument will not deprive any person of the right to indemnity otherwise available under Delaware law. 12 Del. C. §3817. The Delaware Court of Chancery has similarly held that the governing instrument will not deprive any person of the right to indemnity otherwise available under Delaware law. The Delaware Court of Chancery has also held that the governing instrument of a Delaware statutory trust may contain a mandatory or permissive advancement of expenses provision notwithstanding the fact that Section 3817 refers only to indemnification and not advancement. Nakahara v. The NS 1991 American Trust, Del. Ch., C.A. No. 15905, Chandler, C. (March 20, 1998) slip op. at 26-27 (“[T]he language of the [Delaware Act’s] indemnification provision is broad and flexible. Such a general authorization
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of indemnification compels a permissive interpretation with the language intended to authorize as much as possible and exclude only that which is expressly prohibited.”).
L. Construction of Statutes. The Delaware Act provides that the rule that statutes in derogation of the common law will be strictly construed does not apply to the Delaware Act. 12 Del. C. §3825(a). The Delaware Act states also that it “is the policy of this chapter to give maximum effect to the principles of freedom of contract and to the enforceability of governing instruments.” 12 Del. C. §3825(b). These are the same provisions that are included in the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. §17-101, et seq., and the Delaware Limited Liability Company Act, 6 Del. C. §18-101, et seq., and have been given effect by the Delaware courts. Nakahara, slip op. at 29 (“Clearly the Legislature intended to provide Delaware business trusts and limited partnerships wide latitude in the drafting of their governing instruments.”). V. FOREIGN BUSINESS TRUSTS; DOING BUSINESS IN OTHER
STATES
A. Common Law Concerns. There is a risk that a common law business trust may not be recognized outside the state of its formation. There are several cases in which courts have treated business trusts as general partnerships or have otherwise denied the business trust the benefits of the terms of the trust documents. In Means v. Lympia Royalties, 88 S.W. 2d 1080 (Tex. App. 1935), a Texas court held that Texas beneficiaries of a business trust are treated as partners and are liable for the debts of the trust even though in Oklahoma they are not liable. J. Shafran, Investment Trusts and the Conflict of Laws, 50 Cal. L. Rev. 696 (1962). The public policy of the forum state may also have an impact on whether a court will enforce the terms of a trust document and apply the law of the state of formation of a business trust. See C. Cole, Jr., Conflict of Laws; Choice of Law and the Foreign Real Estate Investment Trust, 26 Okla. L. Rev. 295, 399 (1973).
B. Statutory Treatment of Foreign Business Trusts. The 1998 amendments to the
Delaware Act added a series of provisions which require foreign business trusts to register with the Secretary of State before doing business in Delaware (12 Del. C. §3851 et seq.). This document is prepared for information purposes only. Please contact Ellisa Opstbaum Habbart or James C. Strum at The Delaware Counsel Group LLP if you have specific questions regarding this information. The Delaware Counsel Group advises clients worldwide on Delaware corporate and alternative entity transactions. The firm’s clients range from U.S. and international law firms to businesses such as Accenture and LaSalle Bank. The Delaware Counsel Group's philosophy embodies a team methodology for clients who appreciate a relationship-based approach to legal services. Their attorneys have practiced most of their respective careers together and are well recognized for their leadership in national and international organizations including the International Bar Association (IBA), the American Bar Association (ABA) and the Delaware Bankers Association. The Delaware Counsel Group is recognized by Chambers USA as a leading law firm in Delaware Corporate/Mergers and Acquisitions law and founding partner Ellisa Opstbaum Habbart was listed as one of Delaware’s top alternative entity lawyers. The firm is rated “AV” by Martindale Hubbell. Copyright © 2009.
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THE UNIFORM STATUTORYTRUST ENTITY ACT:
A REVIEW
By Thomas E. Rutledgeand Ellisa O. Habbart
THE UNIFORM STATUTORY TRUST ENTITY ACT:A REVIEW
By Thomas E. Rutledge* and Ellisa O. Habbart**
© Thomas E. Rutledge Dec. 9, 09
As part of the continued efforts of the National Conference ofCommissioners of Uniform State Laws1 to provide up-to-date uniform actsfor business organizations, the Uniform Statutory Trust Entity Act2 wasapproved by NCCUSL at its 2009 Annual Meeting. 3
The Act is an important development for statutory trusts which, todate, have not been governed among the various states by uniform or evensimilar statutes, and in states such as Massachusetts have been basedsolely under the common law. Given that we believe the statutory trustshould be part of any choice of entity analysis, our objectives in this articleare twofold. Our first aim is to help readers garner an understanding ofthe Act through the examination of USTA provisions by examining thelanguage employed and placing both procedural and policy determinations
* Member, Stoll Keenon Ogden PLLC (Louisville, Kentucky office).** Partner, Delaware Counsel Group, LLP (Wilmington, Delaware).
1 Hereinafter “NCCUSL.”2 Hereinafter “USTA” or the “Act”. See also infra notes [21] through
[28] and accompanying text.3 In recent years, NCCUSL has promulgated the Uniform Partnership
Act (1997) (6 U.L.A. 1 (2001)) (“RUPA”), itself succeeding the Uniform Partnership Act(1914) (6 U.L.A. 275 (2001)) (“UPA”), the Uniform Limited Partnership Act (6A U.L.A.325 (2008)) (“ULPA”) it succeeding the Revised Uniform Limited Partnership Act(1976, with 1985 amendments) (6B U.L.A. 1 (2008)) (“RULPA”), the 1976/1985 Actbeing the successor to the Uniform Limited Partnership Act (1916), the Revised UniformLimited Liability Company Act (2006) (6B U.L.A. 407 (2008)) (“RULLCA”), itself thesuccessor to the Uniform Limited Liability Company Act (1996) (6B U.L.A. 545 (2008))(“ULLCA”) and, of more recent vintage and without a predecessor act, the UniformLimited Cooperative Association Act (6A U.L.A. 141 (2008)) (“ULCAA”).
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embodied in USTA in the context of comparable provisions in other formsof business organizations.4 Our second objective, and that which we hopewill be most useful to state drafting committees that in future years will beconsidering the adoption of USTA, is to address certain policy decisionsthat were made in the drafting of USTA, policy decisions that have led todeterminations that, in our assessment, deserve further consideration.5
The Drafting Process
In 2003, NCCUSL approved the appointment of the draftingcommittee to prepare a uniform business trust act for consideration by theCommissioners. The drafting committee met approximately five times forweekend long drafting sessions before its first reading6 to theCommissioners at NCCUSL’s 2006 Annual Meeting. An additionalseven drafting meetings took place before the Act’s second, and final,reading in July, 2009.
A variety of sources were considered during the drafting processincluding state business trust acts, model and uniform acts and statistical
4 Expressly not addressed herein is the tax classification and treatment of thestatutory trust. As to that topic, see BITTKER & EUSTICE, FEDERAL INCOME TAXATION OFCORPORATIONS AND SHAREHOLDERS ¶ 2.03 and Carter G. Bishop, Trusts, Taxes andBusiness, 13 BUS. L. TODAY 23 (Nov./Dec. 2003). For a further explanation of thedifficulty in application of the existing classification scheme and recommendations for itsmodification, see Carter G. Bishop, Forgotten Trust: A Check-the-Box Achilles HeelSUFFOLK U.L. REV. (2010) (forthcoming).5 Both of the authors were active in the drafting of USTA. Habbart served as theadvisor from the American Bar Association to the drafting committee, while Rutledgeserved as an advisor from the American Bar Association Section of Business Law. Acomplete list of the advisors from the ABA, as well as the various commissionersappointed by NCCUSL to the drafting committee, may be found at the Act as set forth onthe NCCUSL website. All views expressed herein are entirely those of the authors anddo not necessarily reflect those of other participants in the drafting of USTA.6 A reading is the line by line presentation of a proposed act to the Commissionersfor their review and consideration. Ellisa O. Habbart and Thomas E. Rutledge, SneakPreviews: Will the Uniform Statutory Trust Act be Next Summer’s Blockbuster Hit?, __DELAWARE BANKER 11 (Summer 2008).
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data on the use of statutory trusts in the states.7 The drafting committeeconcluded that the Delaware Statutory Trust Act,8 adopted in 1988,and similar state acts adopted after 1988 would guide the drafting process.During the review, the drafting committee determined that, consistentwith the 2002 change to the name of Delaware’s act from Business TrustAct to Statutory Trust Act, a similar change to the name of the Act wasrequired. The drafting committee made the request and NCCUSLapproved the name change in January 2005 conditioned upon the additionof the word “Entity” to its title.
The drafting committee would have been prepared for a secondreading at NCCUSL’s 2008 Annual Meeting but for its decision to addressthe concept of series in the Act.9 Given the array of issues raised by theseries concept, the drafting committee understood the challenges posed byits decision. In addition, as the first uniform act to tackle the seriesconcept, the committee understood that its decisions would play animportant role in the future deliberations of other uniform act draftingcommittees. Additional meeting time to consider and draft suchprovisions was crucial. The drafting committee requested additional timeand NCCUSL authorized the additional time with the understanding thatthe process would be completed in time for the Act’s second reading atNCCUSL’s 2009 Annual Meeting.
At the time of the preparation of this review, the USTA has notreceived consideration or “approval” by the American Bar Association.10
7 See The Drafting Committee of the Uniform Statutory Trust Act, PreliminaryReport-Uniform Statutory Trust Act (July 2005),http://www.law.upenn.edu/gll/archives/ulc/UGTA/2005AMTrustReport.htm8 Delaware Statutory Trust Act, DEL. CODE ANN. tit. 12, § 3801, et seq.9 See infra notes [__] through [__] and accompanying text.10 NCCUSL identifies various of its products as having been “approved” by theAmerican Bar Association. This is an overstatement as to what is the actual action of theABA. For example, the resolution approved by the ABA with respect to RUPA (1994)reads:
RESOLVED, That the American Bar Association approves theUniform Partnership Act promulgated by the National Conference ofCommissions of Uniform State Laws in 1994 as an appropriate Act for
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The Common Understanding of the Statutory Trust and Its Place in theChoice of Entity Calculus
The “business trust” arose as a vehicle for avoiding rules thatprecluded corporations from owning real property.11 As rules constrainingthe corporate form have fallen12 the need for the business trust as a gap-filler in the menu of organizational forms diminished.13 Still, the businesstrust was adopted in the form of organization for the earliest investmentcompanies,14 and that application continues to this day. In time thebusiness trust came to be utilized for asset securitization, and theorganization of real estate investment trusts.15
Assuming one is not constrained by the historical experience of theparties, when considering a statutory trust, it is helpful to begin with thepremise that a statutory trust is structurally analogous to other forms ofbusiness forms where management and control is separated from equityownership. Similar to the limited liability company and limited partnershipstructures, the statutory trust offers significant contractual flexibility ascompared to the corporation while requiring less observance offormalities. With appropriate drafting, the same results in terms of risksharing, management, voting rights, limits on duties and liabilities and
those states desiring to adopt the specific substantive law suggestedtherein.
A careful reading of the language shows that the ABA does not per se endorse the act foradoption. Rather, if a state desires to adopt an act that conforms to the uniform act, theABA deems it appropriate to adopt the uniform act. The language of the resolution if andwhen USTA is “approved” by the ABA remains to be determined.11 See Sheldon A. Jones, Laura M. Moret and James M. Starcy, The MassachusettsBusiness Trust and Registered Investment Companies, 13 DEL. J. CORP. L. 421, 426(1988). Similarly, the business trust avoided (now archaic) limitations upon maximumcapital. Id. at 426-27.12 See, e.g., MODEL BUS. CORP. ACT § 3.02(a)(4) (powers of corporation includepower to own real property).13 See 16A WILLIAM MEADE FLETCHER, FLETCHER CYCLOPEDIA OF THE LAW OFPRIVATE CORPORATIONS § 8232.14 See Jones et al., The Massachusetts Business Trust, supra note [11] at 446.15 See, e.g., Kelley, Real Estate Investment Trusts After Several Years, 23 Bus.Law. 1001 (1968).
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bankruptcy remoteness may be obtained whether using a statutory trust, alimited partnership16 or a limited liability company.17 Whether, in aparticular instance a statutory trust is the best vehicle is dependent upon acareful review of the desired characteristics, including taxation,18 and thedegree to which, with minimal transaction costs19 that form may becustomized to meet the requirements of that particular application.
The Uniform Statutory Trust Entity Act: A Review
Our review of USTA will proceed on a sequential section bysection basis following the order of the provisions in the Act as approvedin the summer of 2009. As of the drafting of this article, USTA has notbeen released in the Uniform Laws Annotated, and for that reasonreferences to the ULA citations are not included herein.20
Article 1 - General Provisions
16 For purposes of this statement we assume the limited partnership is a limitedliability limited partnership and that the liability shield enjoyed by the general partnerswill be respected in foreign jurisdictions. But see Thomas E. Rutledge and Thomas EarlGeu, Practical Guide to the Limited Liability Limited Partnership, 1 STATE LIMITEDPARTNERSHIP ACTS § 6.17 See Ellisa Opstbaum Habbart and Andrew G. Kerber, Getting the Right Fit:Some Suggestions on Finding the Best Way to Structure a Financing Transaction, ____BUSINESS LAW TODAY ___ (2001). To date the statutory trust has not received broadacceptance as a means of organization outside the traditional applications of theinvestment company and asset securitization, an issue addressed in Tamar Frankel, TheFailure of the Delaware Business Trust Act as the New Corporate Law, 23 CARDOZO L.REV. 1 (2001).18 See supra note 4.19 See Thomas E. Rutledge, The Lost Distinction Between Agency and DecisionalAuthority: Unfortunate Consequences of the Member-Managed versus Manager-Managed Distinction in the Limited Liability Company, 93 KENTUCKY LAW JOURNAL737 at 759-60 (2004-05).20 The text of USTA, as approved by NCCUSL, can be downloaded from theNCCUSL website, nccusl.org, which document also includes the reporter’s notes.Atypically from many uniform acts, the notes of the reporter, in this instance ProfessorRobert Sitcoff, were in part drafted over the course of the preparation of the Act. Thosenotes, however, are those of the reporter and have not been approved by either the USTAdrafting committee or by NCCUSL as a whole.
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Unfortunately, the substantive review of USTA must begin with acriticism. The official name of the Act is the Uniform Statutory TrustEntity Act.21 The word “Entity” was added in order to (a) provide greaterdifferentiation between this act from the Uniform Trust Code22 and (b)purportedly augment the identification of the business organizationscreated thereunder as being a legal “entity” with, consequentially, certaincharacteristics such as the capacity to sue and be sued and to hold andconvey a property in its own name.
We do not view the addition of “Entity” to the name of the Act aseither necessary or efficacious. The effort to differentiate the Act from theUniform Trust Code is contrary to the manner in which NCCUSL hashandled the names of its other uniform acts. For instance, there is nodifferentiation between the names of the Uniform Partnership Act passedin 191423 and the Uniform Partnership Act finalized in 199724 even thoughthe latter defines a partnership as an “entity.”25 Further, the identificationof a form of business organization as an “entity” does not, in and of itself,define any of its characteristics. Rather, “entity” is a label that conveys noinformation26 and is confusing; the Act authorizes the organization of astatutory trust, not a statutory entity trust.27 The organization createdunder the act should not be individually titled something different than the
21 USTA § 101 (“This [act] may be cited as the Uniform Statutory Trust EntityAct.”).22 Uniform Trust Code (2000) § 101 (“This [Act] may be cited as the UniformTrust Code”) .23 6 U.P.A. 373 (2001). See also UPA § 1, 6 U.L.A. 374 (2001).24 6 U.P.A. 56 (2001). See also RUPA § 1202, 6 U.L.A. 265 (2001).25 RUPA § 201(a), 6 U.L.A. 91 (2001). The name of the 1997 act is not theUniform Partnership Entity Act.26 See, e.g., Thomas E. Rutledge, External Entities and Internal Aggregates: ADeconstructionist Conundrum, 43 SUFFOLK U. LAW REV. 655 (2008-09); J. WilliamCallison, Indeterminacy, Irony and Partnership Law, 2 STANFORD AGORA; David Millon,The Ambiguous Significance of Corporate Personhood, 2 STANFORD AGORA.27 See USTA § 102(16) (“‘Statutory trust’ means an entity formed under this[act].’”).
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act itself.28 It is our recommendation that, states eliminate “Entity” fromthe enactment of Section 101 so that the organization created under theAct does not have a different title than that of the Act itself.
The designation of the business organization created under the Actas a “statutory trust,” in contrast to the more traditional “business trust,”was the result of the desire to conform to the practice currently utilized inDelaware and Connecticut, leading states for the organization commonlyknown as the business trust, wherein the entity is designated as a statutorytrust.29 This explanation, however, begs the question of why the term“statutory trust” is there used. The change to “statutory trust” followedthe decision rendered in In re. Secured Equipment Trust of EasternAirlines, Inc.,30 which held that certain trusts utilized for securitizationswere not “business trusts” as contemplated by the Bankruptcy Code.31
Given that business/statutory trusts are often utilized for financing
28 In Indiana, a limited liability company is organized pursuant to the “IndianaBusiness Flexibility Act.” IND. CODE § 23-18-1-1.29 Delaware adopted a Business Trust Act in 1988, referring to an organizationcreated thereunder as a “business trust.” In 2001 the name of the act was changed to theDelaware Statutory Trust Act and the name of an organization created thereunder waschanged to a “statutory trust.” See DEL. CODE ANN. tit. 12, § 3801(g) (2007). Theamendment was not intended as a substantive change in Delaware law. Rather, it wasmade to address the concern of those who used these trusts in structured financetransactions that a “business trust” might be deemed a “person” and therefore a “debtor”under the Federal Bankruptcy Code. If so, the entity could be the subject of aninvoluntary bankruptcy, which would defeat the expectations of the parties in assetsecuritization transactions who rely upon a bankruptcy remote entity. See The DraftingCommittee of the Uniform Statutory Trust Act, Preliminary Report-Uniform StatutoryTrust Act (July 2005),http://www.law.upenn.edu/gll/archives/ulc/UGTA/2005AMTrustReport.htm, p.2.; seealso Habbart and Rutledge, Sneak Previews, supra note [6]. The Connecticut act, whichwas enacted in 1997, used the term “statutory trust” from the outset. See Conn. Gen.Stat. § 34-500. The label “statutory trust” is utilized as well in Wyoming. See WYO.STAT. § 17-23-202(g).30 38 F.3d 86 (2d Cir. 1994).31 A “debtor” eligible to file bankruptcy includes a “person” (11 U.S.C. § 101(13)),which is defined to include a “corporation” (11 U.S.C. § 101(41)) which is, in turndefined to include a “business trust.” 11 U.S.C. § 101(9).
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structures where bankruptcy remoteness is desired,32 this relabeling, itmay be argued, further removes a “statutory trust” from the ambit oforganizations that may file for protection under the bankruptcy code. This“a rose by any other name”33 issue has not been to date addressed in apublished opinion.
Section 102 sets forth the various defined terms that are utilizedthroughout USTA, and those defined terms will be considered as they areindividually utilized.
Section 103 defines the effect of the governing instrument,34 itspermissible scope, the limitations thereon, and the default rule with respectto its amendment.35 If a governing instrument is silent on a matter, theapplicable provisions of USTA will govern.36 The governing instrumentmay include provisions addressing:
(1) the management, affairs and conduct of thebusiness of a statutory trust; and
(2) the rights, interests, duties, obligations, andpowers of, and the relations among, thetrustees, the beneficial owners, the statutorytrust, and other persons.37
32 See, e.g., Steven L. Schwarcz, Commercial Trusts as Business Organizations:Unveiling the Mystery, 58 BUS. LAW. 559, 564 (Feb. 2003).33 Shakespeare, Romeo and Juliet, 11, ii, 1-2.34 “Governing instrument” is defined in USTA section 102(6).35 Except as to reciting the default rule for the amendment of the governinginstrument, section 103 of USTA is substantially equivalent in function to section 103 ofRUPA, section 110 of ULPA and section 110 of RULLCA. See RUPA § 103, 6 U.L.A.103 (2001); ULPA § 110, 6A U.L.A. 378 (2008); RULLCA § 110, 6B U.L.A. 442(2008).36 USTA § 103(b).37 USTA § 103(a).
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The governing instrument need not be set forth in a singleintegrated document,38 and in accordance with the default rule may beamended with the approval of all of the beneficial owners.39 While thereis a long recitation of items that may be addressed in the governinginstrument,40 there are recited as well certain matters dictated by theUSTA that are not subject to modification by private ordering.41 As adefault rule, the common law of the jurisdiction of organization of astatutory trust as it relates to common law trusts will supplement USTA.42
However, it is expressly provided that such applicable common law maybe modified or even superseded in the governing instrument; for example,it could be provided that corporate or partnership law will govern.43 Theforegoing reflects the Act’s policy in favor of giving maximum effect tothe principles of freedom of contract and the enforcement of governinginstruments,44 as well as the Act’s admonition against the rule of strictconstruction of statutes in derogation of common law.45
38 USTA § 103(c). The governing instrument may “refer to or incorporate anyrecord.” As such, the ability of a USTA-governing instrument to incorporate byreference is substantially broader than the ability of articles of incorporation toincorporate by reference as permitted in MBCA section 1.20.39 USTA § 103(d). This amendment threshold may be modified to a differentthreshold in the governing instrument and may, conceivably, also require the approval ofthe trustees, thereby imposing, in effect, the “two house” rule required in corporate lawfor amendment of the articles of incorporation. See, e.g., MODEL BUS. CORP. ACT§ 10.03.40 USTA § 103(e). Note that USTA section 103(e) is not an all encompassing listof the matters that may be addressed in a governing instrument. For example, USTAsection 510 addresses provisions for directed trustees that may appear in the governinginstrument even as USTA section 103(e) is silent as to directed trustees.41 See USTA § 103(f). Those particular limitations on modifiability of the rules setforth in USTA will be addressed in concert with the discussion of the substantive rules.42 USTA § 105. The statutory trust acts of Delaware and Connecticut refer to thelaw of common law trust when the act is silent. See DEL. CODE ANN. tit. 12, § 3809;CONN. CODE § 34.519.43 See, e.g., ARIZONA CODE § 10-1879 (“Any business trust shall be subject to suchapplicable provisions of law from time to time in effect with respect to domestic andforeign corporations, respectively.”).44 USTA § 106. Accord DEL. CODE ANN. tit. 6, §§ 18-1101(b) (limited liabilitycompany agreements); 17-1101(c) (limited partnership agreements); KY. REV. STAT.
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Article 2 - Formation; Certificate of Trust and Other Filings;Process
A statutory trust is formed by the filing of a certificate of trust withthe Secretary of State.46 The certificate of trust must set forth:
The name of the statutory trust;47
The street and, if different, the mailing address ofthe trust’s “designated office”;48
The name, street and, if different, the mailingaddress, of the initial agent for service of process;and
A statement as to whether or not the trust will haveone or more series.49
ANN. §§ 275.003 (operating agreements); 362.1-104(3) (partnership agreements); 362.2-107(3) (limited partnership agreements).45 USTA § 106. Accord DEL. CODE ANN. tit. 6, § 1101(a). RUPA does notcontain a similar provision given, as explained in the commentary, that the “principle isnow so well established that it is not necessary to so state it in the Act.” See RUPA §104, Official Comment, 6 U.L.A. 79 (2001).46 USTA § 201(a). Since the statutory trust is formed by a filing with the state, itwill constitute a “registered organization” within the scope of UCC § 9-102(a)(70)(“‘Registered organization’ means an organization organized solely under the law of asingle state of the United States and as to which the state or the United States mustmaintain a public record showing the organization to have been organized.”).47 The requirements as to the name of a statutory trust are addressed in USTAsection 207.48 Under the Act the designated office has minimal functionality. It is to this officethat notice of the resignation of the registered agent is sent (USTA § 211(b)), identifyingthe county in which notice of dissolution is published (USTA § 805(b)(1)), that notice ofadministrative dissolution is sent (USTA § 806(b)), and that notice of the revocation of acertificate of authority is sent (USTA § 907(b)). See also note [66] and accompanyingtext.49 USTA § 201(b).
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The certificate of trust may contain such additional information as isdesired.50 A statutory trust is formed when the certificate of trust is filedby the Secretary of State.51 A filed certificate of trust, including asamended by a statement of change or qualification or by articles of mergeror conversion, will control over an inconsistent term in a trustinstrument.52 A certificate of trust may be amended and/or restated.53 Therequirements as to the contents of the certificate of trust or any amendmentor restatement thereof are not subject to modification by privateordering.54
A document delivered for filing on behalf of a statutory trust mustbe signed by or on behalf of one of the trustees.55 Given this directiveapplies to the initial certificate of trust, a problem arises from the fact thatthe statutory trust and the authority of any trustee will come into existenceonly upon the filing of the certificate of trust. Prior to the filing, who are
50 USTA § 201(c).51 USTA § 201(d). See also USTA § 204(c)(1). State drafting committees, in lightof the general applicable rule as to the effective time and date of filed documents set forthat USTA section 204(c)(1), may want to delete from their enactment USTA section 201(d) on the grounds that the latter is redundant and substitute the appropriate cross-reference.52 USTA § 201(e). This provision sets forth a different rule than that in theUniform Limited Partnership and the Revised Uniform LLC acts, which provide that asto third parties relying thereupon, the publically filed record will control, but as betweenthe equity owners and their transferees, the private ordering documents will control overthe filed documents. See ULPA § 201(d), 6A U.L.A. 392 (2008); RULLCA § 112(d), 6BU.L.A. 450 (2008).53 USTA § 202. See also USTA § 103(d) (default rule of unanimous consent ofthe beneficial owners in order to amend the governing instrument, which by definitionincludes the certificate of trust).54 See USTA § 103(f)(1).55 USTA § 203. Curiously, USTA section 103(f)(1) permits the delegation of atrustee’s authority to execute a document intended for filing and such right to delegate isnot subject to modification in the governing instrument. Consequently, a provision of agoverning instrument dictating that a trustee may not delegate the authority to sign adocument, ab initio, would be ineffective. A state considering the enactment of USTAmay want to consider whether some flexibility with respect to the ability to restrictdelegation is appropriate and, if so desired, make the necessary modifications to bothsections 203 and 103(f)(1) of USTA.
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the “trustees” purporting to sign and deliver the certificate? It is difficultto see how this point may be resolved within the mechanism provided byUSTA. States considering the adoption of USTA may want to add theequivalent of an “incorporator” or “organizer” provision similar to thoseutilized in many business corporation and limited liability company acts.56
Following such a model, the “incorporator” or “organizer” is authorized toexecute and deliver organization documents to the Secretary of State, andupon the filing the trust comes into existence and the persons namedtherein as trustees become its trustees.
Documents filed with the Secretary of State may have a delayedeffective time and date provided that the delayed effective date cannot bemore than the ninety days after the document is filed.57 Absent adocument setting forth a delayed effective time and/or date, the documentis effective upon filing by the Secretary of State.58 Filed records may becorrected.59 The Secretary of State, provided the necessary conditions aresatisfied, may issue a certificate of good standing with respect to astatutory trust.60
56 See, e.g., MODEL BUS CORP. ACT § 2.01; RULLCA § 201(a), 6B U.L.A. 456(2008) (“One or more persons may act as organizers to form a [LLC] by signing anddelivering to the Secretary of State for filing a certificate of organization”); KY. REV.STAT. ANN. § 275.020(1) (“One (1) or more persons may serve as the organizer and forma [LLC] by delivering articles of organization to the Secretary of State for filing.”);RULLCA § 201(a), 6B U.L.A. 456 (2008), (“One or more persons may act as organizersto form a [LLC] for signing and delivering to the [Secretary of State] for filing acertificate of organization.”). See also RULLCA § 111(c), 6B U.L.A. 449 (2008) (“Twoor more persons intending to become the initial members of a [LLC] may make anagreement providing that upon the formation of the company the agreement will becomethe operating agreement.”) A certificate of limited partnership must be executed by eachperson who will be a general partner of the limited partnership being organized. ULPA §204(a)(1), 6A U.L.A. 399 (2008). See also ULPA § 201(a)(3) (requiring that certificateof limited partnership set forth the name and address of each general partner).57 USTA §§ 204(c)(3), (c)(4).58 USTA § 204(c).59 USTA § 205.60 USTA § 206. While a statutory trust may be organized into one or more series,a certificate of good standing cannot be issued with respect to an individual series. Seeinfra note [106] and accompanying text.
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The name of a statutory trust, in addition to being distinguishableupon the records of the Secretary of State61 may, but is not required, tocontain any of “company,” “association,” “club,” “foundation,” “fund,”“institute,” “society,” “union,” “syndicate,” “limited” or “trust.”62 Thereis no requirement in USTA that the name of a statutory trust include“trust” or “statutory” and there is no other requirement that theorganization otherwise identify in its name its form of organization. Thesame name standards and requirements also apply to foreign statutorytrusts applying for authority to transact business.63
Every statutory trust is required to designate and maintain an agentfor service of process,64 and the Act addresses matters such as the changeof the agent for service of process and the resignation of such agent.65
Given most states have integrated consistent rules with respect to theregistered agent into its other business organization statutes, it is expectedthat each state will replace the Act’s provisions with provisions consistentwith their existing practices and procedures.
A statutory trust may change its designated office either byamending its certificate of trust or by filing a statement of change.66
While it is anticipated that a statutory trust will be obligated to filean annual or other periodic report with the Secretary of State,67 this is
61 USTA § 207(a). The “distinguishable upon the records of the Secretary ofState” standard is used in numerous other uniform acts and in some business/statutorytrust acts. See, e.g., ULPA (2001) § 108(d), 6A U.L.A. 370 (2008); RULLCA § 108(b),6B U.L.A. 440 (2008); ULCAA § 111[(b)] [(c)], 6A U.L.A. 174 (2008); VA. CODE §13.1-1214(C), KY. REV. STAT. ANN. § 386.382(1); DEL. CODE ANN. tit. 12, § 3814(a).Cognizant of the fact that the various states have their own terminology and procedures inplace it is expected that USTA section 207(a) in a typical state adoption of USTA will besubstantially or entirely replaced. For the same reasons, the provision addressing namereservations, USTA section 208, will likely be revised by state drafting committees.62 USTA § 207(b). Accord DEL. CODE ANN. tit. 12, § 3814(c); VA. CODE § 13.1-1214(A).63 USTA § 207(d).64 USTA § 209(a).65 See USTA §§ 210, 211.66 See USTA § 210.
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another instance where state drafting committees will want to establishrules that conform to their respective state’s existing practices andprocedures.
Article 3 - Governing Law; Authorization; Duration; Powers
The laws of the state under which the certificate of trust is filedwill govern the internal affairs of the statutory trust and the liability of itsbeneficial owners and of its trustees for any debt or other obligation ofeither the statutory trust or a series thereof, as well as the enforceability ofa debt or similar liability of the trust or one of its series (if any) against theproperty of the trust or the property of any series (if any). While there iscertainly authority for the proposition that the scope of “internal affairs”includes the responsibility of constituents of a business organization for itsdebts and obligations,68 the rules are addressed in separate sections of the
67 USTA § 213.68 As observed in BAYLESS MANNING, A CONCISE TEXTBOOK ON LEGAL CAPITAL7 (1981):
History aside, it is important to understand that modern corporationlaw does not “provide for” limited liability; what it does is providethat in the case of creditor claims against an enterprise in corporateform, the corporation is the debtor rather than those who hold claimto the proprietorship capital in the enterprise. Once that step is taken,the creditor law of the corporation exactly parallels the law ofindividual indebtedness and of creditors of individuals. (emphasis inoriginal).
See also 1 WILLIAM MEADE FLETCHER, FLETCHER CYCLOPEDIA OF THE LAW OF PRIVATECORPORATIONS § 14 (2006) (“Unless the corporation and the individuals are the same inentity, it is logical that its rights and liabilities are not primarily and essentially theirs.When it is an owner or a debtor, they are not, and vice versa.”). It needs to be recognizedas well that, in addition to protecting the owners from exposure in excess of the amountsinvested in the venture, the corollary of limited liability, namely that the assets of theventure will not be available to satisfy claims against the owners in their individualcapacities, assures a defined pool of assets available to satisfy venture creditor claims.Id. at § 38. This aspect of limited liability has been labeled “defensive assetpartitioning.” See Henry Hansmann & Reinier Krackman, The Essential Role ofOrganizational Law, 110 YALE L.J. 387, 394-95 (2000).
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USTA just as they are addressed in separate sections of the RESTATEMENT(SECOND) OF CONFLICT OF LAWS.69
A statutory trust is an entity separate from its trustees andbeneficial owners.70 A statutory trust may have any lawful purpose, whichmay include a not for profit purpose, provided it does not have a“predominantly” donative purpose.71 When state drafting committeesconsider the USTA for adoption, they will want to review existinglimitations on the use of the business trust in their state and determinewhether to incorporate them into the new act or, conversely, decide thatthe policy bases for those limitations no longer exist.72
The restriction against a statutory trust with a primarily donativepurpose exists to insure that the statutory trust is not used to avoid theapplication of policy-based mandatory limitations imposed upontraditional trusts such as those recited in section 105 of the Uniform TrustCode. The requirement that the statutory trust be treated as an entity is notlisted as a mandatory provision in the USTA; it is therefore conceivablethat it could be subject to waiver and, presumably, notice of this waiver
69 Respectively, sections 302 and 307.70 USTA § 302. Accord DEL. CODE ANN. tit. 12, § 3810(a)(2) (“A statutory trustformed under this Chapter shall be a separate legal entity, the existence of which asseparate legal entity shall continue until cancellation of the statutory trust’s certificate oftrust.”); VA. CODE § 13.1-1208 (“A business trust established in accordance with theprovisions of this Chapter is a separate legal entity.”) As previously noted, the mereidentification of a statutory trust as an “entity” does little if anything to advance itsanalysis. See supra note [26] and accompanying text. Rather, a characteristic bycharacteristic analysis is necessary.71 USTA § 303. This provision is consistent with the existing law in Connecticut.See CONN. STAT. § 34-502a. Certain other existing business trust acts do not expresslyexclude a trust with a predominantly donative purpose. See, e.g., VA. CODE § 13.1-1209.Other states are ambiguous. See, e.g., ARIZONA CODE § 18-1873 (“A business trust ispermitted as a recognized form of association for the conduct of business within thisstate.”). In contrast, Delaware explicitly authorizes the formation of a statutory trust fordonative purposes. See DEL. CODE ANN. tit. 12, § 3801.72 For an example of such limitations, under current Indiana law, a business trustmay not be utilized for the organization of a railroad. See IND. CODE § 23-25-1-8.
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would be set forth in the certificate of trust in order to put third parties onnotice.73
The limited liability of the trust’s constituents with respect to anydebt or obligation of the trust or series thereof is in USTA stated bothaffirmatively (debt is that of the trust or the series) and negatively (nobeneficial owner, trustee or any agent thereof is personally liable for adebtor obligation of the trust or of a series).74 As such, a statutory trustachieves the “asset partitioning” that [has] have been typically associatedwith, the corporation and the limited liability company.75 The applicationof the limited liability rule with respect to agents assumes that, in thedischarge of the agent’s functions, there has been an appropriateidentification of the principal on whose behalf they are acting.76
Additionally, no creditor of a trustee or of a beneficial owner may seek tocollect a debt against any specific property of the statutory trust.77
As a default rule modifiable in the governing instrument,78 astatutory trust has perpetual existence.79 This rule is directly opposite to
73 It being unclear which characteristics, if any, necessarily flow to a statutory trustfrom its identification as an entity, it is equally unclear as to what would be theconsequences of electing rather to be treated as an aggregate. See supra note [26] andaccompanying text. See also DEL. CODE ANN. tit. 6, §15-201(c) (permitting a Delawarepartnership, otherwise classified as an entity, to elect in either a statement of partnershipexistence or a statement of qualification to be treated as an aggregate).74 USTA § 304. At one time the trustee was liable for the debts and obligations ofthe trust with a corresponding right of contribution out of trust assets. See RESTATEMENT(SECOND) OF TRUSTS §§ 244, 261 (1959). This rule was revised and indeed reversed inthe Uniform Trust Code § 1010 (2000), it providing that a trustee is not personally liablefor the debts, obligations and liabilities arising in the trustee’s fiduciary capacity.75 See, e.g., KY. REV. STAT. ANN. § 275.240(1) (“Property transferred to orotherwise acquired by a [LLC] shall be the property of the [LLC] and not of the membersindividually.”); Lynn A. Stout, On the Nature of Corporations, 2005 U. ILL. L. REV. 253;Henry Hansmann & Reinier Kraakman, The Essential Role of Organizational Law, 110YALE L. J. 387, 383 (2000).76 See RESTATEMENT (THIRD) OF AGENCY § 6.03 (2006).77 USTA § 305. See also USTA § 601(c) (beneficial owner’s interest in thestatutory trust is not an interest in any property of the statutory trust).78 “Governing instrument” being defined in USTA section 103(a).
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the rule of limited duration applied to common law trusts as mandated bythe rule against perpetuities.80 Although a statutory trust or a seriesthereof may be terminated or revoked, it is further proved that such atermination or revocation may be accomplished only in accordance withthe terms of the governing instrument.81 This exclusive reference to thegoverning instrument eliminates the application of existing common lawwhich seeks to strike a balance, over time, between the desires of thesettler and the desires and expectations of the beneficiaries. Neither astatutory trust nor any series thereof shall be terminated consequent to the“death, incapacity, dissolution, termination or bankruptcy” of either abeneficial owner or of a trustee.82 Overriding the “merger doctrine” thatexists under the common law of trusts whereby legal and equitable titlewould otherwise merge,83 the Act provides that neither a trust nor a seriesthereof will terminate merely because the same person is both the onlytrustee and the only beneficial owner thereof.84
A statutory trust may hold and take title to property in its ownname; alternatively, property may be held in the name of a trustee in any
79 USTA § 306(a). Accord ULPA § 104(c), 6A U.L.A. 366 (2008); RULLCA§ 104(c), 6B U.L.A. 437 (2008); ULCAA § 105, 6A U.L.A. 168 (2008).80 The common law rule against perpetuities, which continues to be followed by anumber of states, requires that all interests must vest no later than 21 years after the endof a life (or lives) in being at the creation of the trust. See, e.g., Iowa (IOWA CODE §558.68); New York (NY EST. POWERS & TRUST § 9-1.1); and Texas (TX PROP. §112.036). Thus, in those states that follow the common law rule, a trust has a limited lifespan. However, many states have repealed the common law rule entirely, at least as topersonal property (see, e.g., Delaware (25 DEL. CODE ANN. tit. 25, § 503); New Jersey(N.J. STAT. ANN. § 46:2F-9); and South Dakota (S.D. CODIFIED LAWS § 43-5-8)); or haveextended the allowed life of a trust by adopting, for example the Uniform Statutory RuleAgainst Perpetuities (“USRAP”) (see, e.g., California (CAL. PROB. CODE § 21200);Connecticut (CONN. GEN. STAT. § 45a-491); and Florida (FLA. STAT. § 689.225)), whichadopts both the common law rule as well as an alternative rule that all interests will bevalid if they actually vest within ninety years. USRAP § 1.(a), 8b U.L.A. 236 (2001).81 USTA § 306(b).82 See USTA § 801. Contrast UPA §§ 29, 30 and 31.83 See RESTATEMENT (THIRD) OF TRUSTS § 69 (2003); UNIFORM TRUST CODE §402(a)(5).84 USTA § 306(d).
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of an active, passive or custodial capacity.85 Although it is anticipated thatconsistent with the treatment of a statutory trust as a legal entity astatutory trust will hold property in its own name whenever possible,86
USTA provides flexibility and authorizes property to be held in the nameof the trustee on behalf of the trust. Consistent with the traditional law oftrusts, such flexibility permits a statutory trust to operate in states that maynot recognize the statutory trust and, as a result, require the trustee to holdtitle to property. The “property” of a statutory trust may be real, personal,tangible or intangible.87
Pursuant to USTA section 308(a), a statutory trust may sue and besued in its own name.88 Section 308(b) of the Act provides that except tothe extent property has been “associated” to a particular series,89 theproperty of a statutory trust, whether held in the name of the trust or in thename of a trustee, is subject to attachment and execution to satisfy a debtor other obligation of the trust.90 There are, we submit, two problems withUSTA section 308(b), namely, the placement and terminology employed.
With respect to the matter of placement, the language of USTAsection 308(b) recites what property is available to satisfy an obligation ofa trust or of a series thereof, language which is in the nature of a remedy.In contrast, USTA section 308(a) is an affirmative power of a statutory
85 USTA § 307.86 See Rutledge, External Entities and Internal Aggregates, supra note [26] at671-72.87 USTA § 102(9) (defining “property”). Compare RUPA § 101(11), 6 U.L.A. 61(2001). “Property” is not defined in RULLCA or ULCAA.88 USTA § 308(a). Accord RUPA § 307(a), 6 U.L.A. 124 (2001); ULPA 2001§ 105, 6A U.L.A. 367 (2008); ULLCA § 106, 6A U.L.A. 169 (2008); RULLCA (2006)§ 105, 6B U.L.A. 438 (2008); MODEL BUS. CORP. ACT § 3.02(1) (2006). Blackstonedescribed one of the characteristics of a corporation, it being of that age the prototypicalentity, as being the power to sue or be sued in the corporate name. WILLIAMBLACKSTONE, 1 COMMENTARIES *475.89 See infra notes [109] through [113] and accompanying text.90 USTA § 308(b). This provision recites:
(b) Except as otherwise provided in [Article 4], property of a statutory trust held inthe name of the trust or by the trustee in the trustee’s capacity as trustee is subject toattachment and execution to satisfy a debt, obligation, or other liability of the trust.
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trust. Further, the nature of that power, namely the right of the statutorytrust to sue and be sued, is distinct from the remedy provision in USTAsection 308(b). For this reason we would recommend that state draftingcommittees move the remedy language of USTA section 308(b) so that itis a continuation of the current language of USTA section 304.Alternatively, the current language of USTA section 304 may bedesignated (a) and a new subsection (b) added which contains the remedynow set forth in USTA section 308(b).
With respect to terminology, USTA section 308(b) is ratherconfusing. The reference to trust property held in the name of the trusteeis already addressed in USTA section 307 and does not need to be againreferenced. In addition, the reference to Article 4 of USTA, an obliquereference to the creation of a series and the association of property to aseries, may well be too inferential for practitioners and the courts.Therefore, we would recommend that the concept of USTA section 308(b)be rewritten to read as follows:
The property of a statutory trust that has not beenassociated with a series is subject to attachment andexecution to satisfy a debt, obligation or other liability ofthe trust. Property of a statutory trust associated with aseries is subject to attachment and execution to satisfy adebt, obligation or other liability incurred with respect tothe property associated with that series.91
With these changes, the arguably overly broad cross-reference to Article 4is avoided and the rules with respect to what assets are, and are not,available to satisfy the obligations of statutory trust or any series thereofare recited in an integrated manner. Finally, the placement of theprovision so as to be consistent with what assets are available to satisfy aliability, as contrasted with a power, of the statutory trust is achieved.
91 With respect to the reference to a debt “incurred with respect to the propertyassociated with that series” rather than a seemingly more direct “debt of that series,” seeinfra note [109] and accompanying text.
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Article 4 - Series Trusts
In order to properly consider the series provisions of USTA it isimportant to understand the history of the series concept.
The series arose in the context of statutory trusts92 utilized for assetsecuritization93 and the organization of investment companies; 94 Delawareincluded the series in its Business Trust Act.95 In addition to Delaware,
92 Delaware adopted a Business Trust Act in 1988, referring to the organizationcreated thereunder as a “business trust.” In 2001 the name of the act was changed to theDelaware Statutory Trust Act and the name of an organization created thereunder waschanged to “statutory trust.” See DEL. CODE ANN. tit. 12, § 3801(g) (2007); see alsosupra note [29]. Herein “statutory” and “business” trust are used interchangeably.93 See also Steven L. Schwarcz, Commercial Trusts as Business Organizations,supra note 25 at 559 (“[T]rusts have come to dominate certain types of modern businessand financial transactions. For example, ‘[a] large fraction of all mortgage, credit card,automobile, and student loan debt,’ perhaps ‘number[ing] in the trillions of dollars,’ isfinanced through asset securitization trusts.” Citing John H. Langbein, The Secret life ofthe Trust: The Trust as an Instrument of Commerce, 107 YALE L.J. 165, 172 (1987). Foran introduction to asset securitization, see Steven L. Schwarcz, The Alchemy of AssetSecuritization, 1 STAN. J.L. BUS. & FIN. 133 (1994) and STEVEN L. SCHWARCZ,STRUCTURED FINANCE, A GUIDE TO THE PRINCIPLES OF ASSET SECURITIZATION (3rd ed.2002).94 See, e.g., GORDON ALTMAN, ET AL., A PRACTICAL GUIDE TO THE INVESTMENTCOMPANY ACT 2-3 (1996) (“A series company or fund is an investment companycomposed of separate portfolios of investments organized under the umbrella of a singlecorporate or trust entity. . . . Each portfolio of a series company has distinct objectivesand policies, and interests in each portfolio are represented by a separate class or series ofshares. Shareholders of each series participate solely in the investment results of thatseries. In effect, each series operates as a separate investment company.”); THOMAS A.HUMPHREYS, LIMITED LIABILITY COMPANIES § 1.04 (2006) (“The series fund concept isuseful because it permits the formation of only one legal entity. For example, a seriesmutual fund formed as a corporation under state law has only one board of directors, oneset of officers, etc. It files a single registration under the Investment Company Act of1940. The use of the series is thus designed to save expenses for the fund’sshareholders.”) (citation omitted). See also INVESTMENT COMPANY ACT, 15 U.S.C§ 18(f)(2) (2006); SEC Rule 18f-2(a) (1972) (“For purposes of this rule a series companyis a registered open-end investment company which, in accordance with the provisions ofSection 18(f)(2) of the Act, issues two or more classes or series of preferred or specialstock each of which is preferred over all other classes or series in respect of assetsspecifically allocated to that class or series.”).95 See also footnote [92].
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the series concept appears in the statutory/business trust acts ofConnecticut, Virginia and Wyoming.96 In the context of mutual funds aseries is an administrative subunit of an investment company. Assumingthat the investment company is organized as a statutory trust, only it, onbehalf of the “fund family,” will register with the SEC on, for example,Form N-l. Thereafter, the trust organizes a series for each of the varioussponsored funds.97 The business trust has a single trustee, typicallyembodied in a board, overseeing all of the series even as, on behalf of eachseries-organized fund, distinct fund managers are retained. Further,typically all of the series organized by a single investment companyoperate under a single set of service documents executed with variousservice providers such as transfer agents, custodians, principalunderwriter(s), numerous broker-dealer firms, and so on.98 In the contextof securitization, distinct series are organized for classes of securitizedassets and securities are issued with respect to each series.
Today, the series concept continues to be used for mutual fundsand asset securitizations. However, the use of the series concept for otherapplications is being seen. For example, it has been suggested that itmight be used as a mechanism by which an integrated oil company couldorganize liability shields between different oil fields and other assets,99 in
96 DEL. CODE ANN. tit. 12, § 3806; CONN. STAT. § 34-5167(b)(2) & § 34-502(b);VA. CODE § 13.1-1219, § 13.1-1231 & § 13.1-1240; WYOMING STAT. §§ 17-23-108(b)(ii), 17-23-106(b). Delaware has series provisions in its LLC (DEL. CODE ANN. tit.6, § 18-215) and limited partnership acts. DEL. CODE ANN. tit. 6, § 17-218(b). Seriesalso appear in the LLC acts of Illinois (805 ILCS 180/37-40 (2007)), Iowa (IOWA CODE §490A.305 (until Jan. 1, 2009); IOWA CODE §§ 489.1201 thru 489.1206 (after Jan. 1,2009)), Nevada (NEV. REV. STAT. § 86.296.3 (2008)), Oklahoma (18 OKLA. STAT. ANN.§ 2054.4B (2008)), Tennessee (TENN. CODE ANN. § 48-249-309 (2008)), Texas (TEXASBUS. ORGS. CODE §§ 101.601 to 101.621) and Utah (UTAH CODE ANN. § 48-2c-606(2008)).97 See HUMPHREYS, supra note [94].98 Further, typically all of the series organized by a single investment companyoperate under a single set of service documents executed with various service providerssuch as transfer agents, custodians, principal underwriter(s), numerous broker-dealerfirms, and so on.99 See, e.g., Terence F. Cuff, Series LLCs and the Abolition of the Tax System, 2BUSINESS ENTITIES 26 (Jan.-Feb. 2000), at 816. It has been suggested as well that anorganic farm that raises livestock, grows the grain fed to the livestock, and owns the realproperty on which the operations are conducted might distribute its various business
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real estate,100 and there is at least one instance where a series of an LLCwas utilized to own a personal speedboat.101
The Revised Uniform Limited Liability Company Act expresslydoes not include series LLCs.102 As such, the incorporation of series into
segments among separate series. See Dominick T. Gattuso, Series LLCs—Let’s Give theFrog a Little Love, 17 BUS. L. TODAY 33, 36 (July/Aug, 2008).100 See, e.g., Nick Marsico, Current Status of the Series LLC: Illinois Series LLCImproves Upon Delaware Series LLC but Many Open Issues Remain, 9 J. PASSTHROUGHENTITIES 35, 38-39 (Nov.-Dec. 2006); John C. Murray, A Real Estate Practitioner’sGuide to Delaware Series LLCs (with Form),http://www.firstam.com/listReference.cfm?id=5574 (last visited Mar. 15, 2009).101 See GxG Management LLC v. Young Brothers and Co., Inc., 2007 WL 551761(D. Me. 2007).102 As set forth in the prefatory note to RULLCA:
The new Act also has a very noteworthy omission; it does not authorize “seriesLLCs.” Under a series approach, a single limited liability company mayestablish and contain within itself separate series. Each series is treated as anenterprise separate from each other and from the LLC itself. Each series hasassociated with it specified members, assets, and obligations, and-due to whathave been called “internal shields” –the obligations of one series are not theobligation of any other series or of the LLC.
Delaware pioneered the series concept, and the concept has apparently beenquite useful in structuring certain types of investment funds and in arrangingcomplex financing. Other states have followed Delaware’s lead, but a numberof difficult and substantial questions remain unanswered, including:
o Conceptual-How can a series be-and expect to be treated as-a separate legalperson for liability and other purposes if the series is defined as part of anotherlegal person?
o Bankruptcy-Bankruptcy law has not recognized the series as a separatelegal person. If a series becomes insolvent, will the entire LLC and the otherseries become part of the bankruptcy proceeding? Will a bankruptcy courtconsolidate the assets and liabilities of the separate series?
o Efficacy of the internal shields in the courts of other states-Will the internalshields be respected in the courts of states whose LLC statutes do not recognizeseries? Most LLC statutes provide that “foreign law governs” the liability ofmembers of a foreign LLC. However, those provisions do not apply to theseries questions, because those provisions pertain to the liability of a memberfor the obligations of the LLC. For a series LLC, the pivotal question is entirely
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USTA, while their incorporation into RULLCA had been expresslyrejected, constitutes a patent change of course for both NCCUSL anduniform acts. Still, it must be appreciated that as incorporated in USTA,there is “a” notion of what is a series, a notion that, consequent to pathdependency resulting from the use of the Delaware Statutory Trust Act’sconcept of a series for the structuring of investment companies andstructured finance transactions, conforms to existing Delaware statutorytrust law. The utilization of this concept of the series in USTA isconsidered by the authors to constitute a major failing of the Act whenconsidered against the desire, through USTA, to expand the use of thestatutory trust beyond its traditional applications in investment companiesand asset securitization and the freedom of contract that would exist werea different model of the series to be utilized in USTA. As drafted, theauthors believe that the provisions relating to series in the USTA fail toencourage the expansion of the statutory trust beyond its traditional uses.Instead of representing a shift in the paradigm, the series concept in theUSTA merely conforms to an existing paradigm. In fairness to the USTAdrafting committee, it must be understood that the series provisions in theUSTA were drafted after consideration of the many statutory trustsformed, most notably, pursuant to the Delaware Statutory Trust Act by the
different-namely, whether some assets of an LLC should be immune from someof the creditors of the LLC.
o Tax treatment-Will the IRS and the states treat each series separately? Willseparate returns be filed? May on series “check the box” for corporate taxclassification and the others not?
o Securities law-Given the panoply of unanswered questions, what types ofdisclosures must be made when a membership interest is subject to securitieslaw?
The Drafting Committee considered a series proposal at its February 2006meeting, but, after serious discussion, no one was willing to urge adoption ofthe proposal, even for the limited purposes of further discussion. Given theavailability of well-established alternate structures (e.g., multiple single memberLLCs, an LLC “holding company” with LLC subsidiaries), it made no sense forthe Act to endorse the complexities and risks of a series approach.
6B U.L.A. 412-13 (2008). While the determination was made to include seriesprovisions within USTA, the areas of uncertainty and ambiguity identified in thecomments to RULLCA remain, and the language with respect to series included in USTAdoes not, within the context of a statutory trust, resolve those issues.
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investment company and asset securitization industries. Representativesfrom those industries requested that the series provisions of USTA trackthose in the Delaware Statutory Trust Act. This objective was satisfied inthe final document. We will first review the series as it appears in USTA,then turn to our criticism thereof.
The authority for series is subject to a combination of public noticeand private ordering. The certificate of trust, in addition to containing theinformation otherwise required,103 must provide notice that the statutorytrust will have one or more series.104 USTA requires the governinginstrument to provide that records to be maintained on behalf of eachseries that “reasonably identify the property of the series” in an“objectively determinable” manner.105 A series is not an entity separate
103 See USTA § 201(b).104 USTA § 401(a)(2). See also USTA § 201(b)(4). The requirement of publicnotice of the existence or the capacity to organize series is universal across the variousstatutes providing for their formation. See, e.g., NEV. REV. STAT. § 86.161(1)(e)(requiring that the articles of organization of a series LLC set forth that it is a series LLCand either the “relative rights, powers and duties of the series” or that such are set forth inor established by the operating agreement); DEL. CODE ANN. tit. 6, § 18-215 (certificateof formation must set forth that the LLC is a series LLC as a precondition to serieslimited liability); UTAH CODE § 48-2c-606(3)(d) (articles of organization must set forthnotice of series limited liability as a precondition thereto); DEL. CODE ANN. tit. 6, § 17-218(b) (certificate of limited partnership must set forth that limited partnership is a serieslimited partnership as a precondition to series limited liability); DEL. CODE ANN. tit. 12,§ 3804(a) (in order for series to enjoy limited liability, notice of the limited liability of theseries must be set forth in the certificate of trust); VA. CODE ANN. § 13.1-1231.D (inorder for series to enjoy limited liability, notice of limited liability of the series must beset forth in the articles of trust); CONN. STAT. § 34-502(b) (providing that, in order forseries to enjoy limited liability, “notice of the limitation on liabilities of series asreferenced in this sentence is set forth in the certificate of trust of the statutory trust.”);IOWA CODE ANN. § 489.1201(2)(d) (2006) (requiring as a condition to inter-series limitedliability that “[n]otice of establishment of the series and the limitation on liabilities of theseries is set forth in the certificate of organization....”); and Wyoming (WY. STAT. § 17-23-106(b)(iii) (requiring as a condition to series limited liability that “notice of thelimitation on liabilities of a series as referenced in this subsection is set forth in thecertificate of trust of the statutory trust.”)105 USTA § 401(a)(1). See also DEL. CODE ANN. tit. 6, § 17-218(b) (requiring as aprecondition of series limited liability that there be maintained records accounting for theassets associated with each series as distinct from those held otherwise by the limitedpartnership or any other series thereof); VA. CODE ANN. § 13.1-1231.D (requiring as aprecondition of series limited liability that there be maintained records accounting for the
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from the statutory trust106 even though it may have a separate purposefrom the statutory trust, provided that purpose is lawful and is notpredominantly donative.107 Given that these mandates are referenced inUSTA section 103(f)(4) they are not subject to modification by privateagreement.108
assets associated with each series as distinct from those held otherwise by the trust or anyother series thereof; TENN. CODE ANN. § 48-249-309(b)(1)(B) (requiring that, in order forseries limited liability to be available, that separate and distinct records be maintained foreach series reflecting the assets associated with each series, accounting for in separateand distinct records the other assets of the LLC and the assets of any other series of theLLC); UTAH CODE ANN. § 48-2c-606(3)(b), (c) (limited liability being conditioned uponthe maintenance on behalf of the series of separate and distinct records and that the assetsassociated with each series be held and accounted for separately from the other assets ofthe LLC or of any other series thereof); 18 OKLA. STAT. ANN. § 2054.4.B. (providing as aprecondition to series limited liability that “separate and distinct records are maintainedfor any such series and that the assets associated with any such series are held, directly orindirectly, including through a nominee or otherwise, and accounted for separately fromthe other assets of the [LLC], or any other series thereof”); 805 ILCS 180/37-40(b)(providing as a precondition to series limited liability that “separate and distinct recordsare maintained for any such series and that the assets associated with any such series areheld, directly or indirectly, including through a nominee or otherwise, and accounted forseparately from the other assets of the [LLC], or any other series thereof”); NEV. REV.STAT. § 86.296(3)(a) (providing as a precondition to series limited liability that “separateand distinct records are maintained for any such series and that the assets associated withany such series are held, directly or indirectly, including through a nominee or otherwise,and accounted for separately from the other assets of the [LLC], or any other seriesthereof”); DEL. CODE ANN. tit. 6, § 18-215(b) (providing as a precondition to serieslimited liability that “separate and distinct records are maintained for any such series andthat the assets associated with any such series are held, directly or indirectly, includingthrough a nominee or otherwise, and accounted for separately from the other assets of the[LLC], or any other series thereof”); IOWA CODE ANN. § 489.1201(2)(b) (“Separate anddistinct records are maintained for the series and separate and distinct records account forthe assets associated with that series. The assets associated with a series must beaccounted for separately from the other assets of the limited liability company, includinganother series.”); TEXAS BUS. ORGS. CODE §§ 101.602(b)(1), 101.603(b); and WYOMINGSTAT. § 17-23-106(b)(i), (ii).106 USTA § 401(b).107 USTA § 401(c). See also USTA § 303(b).108 For example, in contrast to USTA section 401(b), the governing instrument maynot provide that a series of a statutory trust will be treated as an entity. Contrast 805ILCS § 180/37-40(b) (2007) (“A series is treated as a separate entity to the extent setforth in the articles of organization; each series with limited liability, may, in its own
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The rules of limited liability afforded to a statutory trust havingseries, as well as the rules with respect to the association of property to aseries, are addressed in USTA section 402. Initially, debts, obligationsand liabilities incurred with respect to the property of a particular series109
are enforceable only against the properties and assets associated with thatseries. Properties associated with another series or held by the statutorytrust itself and not associated with the series110 are not subject to claimsagainst the properties of a particular series. Debts, obligations andliabilities of either the statutory trust generally or with respect toproperties associated to another series are not enforceable against theproperty associated with a particular series.111
The association of property of the statutory trust with a particularseries thereof, the “disassociation”112 or the reassociation of propertywithin a statutory trust and between itself and any series thereof will besubject to state fraudulent conveyance laws.113 By way of example, if anasset is disassociated from a series, it becomes an asset of the statutorytrust (unless and until it is reassociated with another series) and is not
name, contract, hold title to assets, grant security interests, sue and be sued and otherwiseconduct business and exercise the powers of an LLC.”); IOWA CODE § 489.1201(3) (supp.2009) (“A series meeting all of the conditions of Subsection II shall be treated as aseparate entity to the extent set forth in the certificate of organization.”)109 Attention should be paid to the language employed, namely that a debt or otherobligation is incurred “with respect to the property of a particular series.” USTA §402(a)(1). This formula should be contrasted with debts incurred with respect to aparticular series. Because a series is not a distinct legal entity (USTA § 401(b)) and lacksthe capacity to contract on its own behalf and in its own name, a necessary distinction hasbeen drawn between the property associated with the series and the series itself.110 USTA § 402(a)(1).111 USTA § 402(a)(2). Not being referenced in USTA section 103(f), the governinginstrument may modify the rules of limited liability set forth in USTA section 402(a).USTA section 402(a) refers to property “of” a series. While this is a convenientshorthand, it glosses over the fact that property is “associated” with a series and that aseries does not have the capacity to hold title to property. See supra note [109]. Statedrafting committees may want to clarify the language in the adoption of USTA section402(a).112 The meaning of “disassociation” as utilized in USTA section 402(b) is differentfrom that of the term as utilized in RUPA section 601 et seq.113 USTA § 402(b).
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available as an asset of the series to satisfy a claim against its assets. Tothe extent the dissociation poses a detriment to a creditor of the series, thedissociation would need to pass scrutiny under fraudulent conveyancelaws.
USTA section 403 provides that if there is with respect to aparticular series a trustee obligated to consider the interests of the statutorytrust itself and all of the series, the governing instrument may provide foradditional trustees of that series who may consider the needs of only thetrusts or of one or more of the series.114 While the phraseology employedis less than clear, the capacity of a series to have, for example, a trusteewhose duties and obligations run exclusively to the assets and beneficialowners associated with that series is contingent upon there being at leastone trustee of that series whose duties and obligations are not solimited.115
An individual series of a statutory trust will be dissolved andwound up as provided in the governing instrument and upon thedissolution of the trust itself.116 The dissolution of an individual seriesdoes not compel the dissolution of the statutory trust as a whole or of anyother series.117 Upon dissolution, the winding up process will be under thecontrol of the persons to whom that responsibility has been delegated bythe governing instrument,118 and the individual series of a trust will betreated as if it were a trust subject to USTA sections 803 through 805.119
The trustee or other person charged with oversight of the winding upprocess of a series is not by reason of serving in that role liable for thedebts and obligations of that series.120 After dissolution the activities of aseries are restricted to those appropriate for the purposes of winding up.121
114 USTA § 403.115 See also USTA § 103(f)(4).116 USTA § 404(b).117 USTA § 404(a).118 USTA § 404(c).119 Id.120 USTA § 404(d).121 USTA § 803(a).
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Consequently, if a trustee or other person responsible for the winding upof a series undertakes activities beyond those appropriate for the windingup, they could subject themselves to personal liability.122
State drafting committees, in their consideration of USTA, shouldgive particular attention to Article 4 and determine whether it embodiesthe concept of the series desired for that state. They should keep in mindthat, to a certain degree, series provisions in USTA appear as they dobecause of a degree of path dependency. That is, the series as embodied inthe Delaware Statutory Trust Act is heavily utilized by the investmentcompany and asset securitization industries, and representatives fromthose industries lobbied that the series provisions of USTA would trackthose in Delaware. This objective was satisfied in the final document. Indoing so, while the USTA series tracks that in the Delaware StatutoryTrust Act, it fails to include provisions that have been adopted withrespect to series in other acts, including those in Delaware. For example,an USTA series cannot either contract or hold and convey property in itsown name. Conversely, numerous other series provisions do permit anindividual series to sue and be sued and to hold and convey property in itsown name.123 While such will no doubt have ancillary implications under
122 See RESTATEMENT (THIRD) OF AGENCY § 6.10; see also Thomas E. Rutledge,Limited Liability (or Not): Reflections on the Holy Grail, 51 SOUTH DAKOTA L. REV.417, 431-33 (2006).123 See, e.g., 805 ILCS § 180/37-40(b) (“each series with limited liability may, in itsown name, contract, hold title to assets, grant security interests, sue and be sued andotherwise conduct business and conduct the powers of a limited liability company underthis Act.”); UTAH CODE ANN. § 48-2c-606(5) (“a series may contract on its own behalfand in its own name, including through a manager”); DEL. CODE ANN. tit. 6, § 17-218(c)(“unless otherwise provided in a partnership agreement, a series established inaccordance with subsection (b) of this section shall have the power and capacity to, in itsown name, contract, hold title to assets (including real, personal and intangible property),grant liens and security interests, and sue and be sued.”); and IOWA CODE ANN.§ 489.1201(7), incorporating id. § 489.105(1) (power to sue and be sued in own name).For an in-depth comparison of the series provisions as they exist across the statutorytrust, limited partnership and LLC acts of Delaware, see Ann Conaway, A BusinessReview of the Delaware Series: Good Business for the Informed, WIDENER LAW SCHOOLLEGAL STUDIES RESEARCH PAPER No. 08-19, available at SSRN:http//ssrn.com/abstract=1097645. See also Thomas E. Rutledge, Again, For the Want ofa Theory: The Challenge of the “Series” to Business Organization Law, 46 AM. BUS. L.J.311 (Summer 2009).
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bankruptcy, taxation and other bodies of law, a more “robust” treatment ofa series may often be advantageous to the utilization of this structure,especially outside of the traditional investment company and assetsecuritization applications. That the investment company and assetsecuritization industries may be wedded to the concept of the series ascurrently embodied in the Delaware Statutory Trust Act need not haveimposed that same model upon the series as utilized in USTA. Had adifferent model of the series been included in USTA, a market would havearisen between them. The relatively minimalist concept of the series couldcontinue in Delaware while those desiring a series with more innatesubstantiality could organize in a jurisdiction that had adopted USTA. Byadopting a different model of the series in its individual adoption of USTAa state can create that market.
If there is a desire to make the statutory trust available outside ofits traditional applications, state drafting committees may want to considerother series models, particularly that set forth in the Texas LLC Act, intheir consideration of USTA.124 In addition, consideration of provisionsthat have been adopted with respect to series in other businessorganization acts may be appropriate.
Article 5 - Trustees and Trust Management
The business and affairs of a statutory trust are managed by one ormore trustees.125 The trustees, in managing the business and affairs of the
124 Further, state drafting committees, when considering what series provisionshould exist in individual adoptions of USTA, may want to consider of whether thestate’s limited liability company and limited partnership laws should be supplemented to,as well, incorporate the series. As of this writing, Delaware is the only state in which theseries appears in all of the LLC, limited partnership and statutory trust acts, albeit not inthe same formula. See Conaway, Delaware Series, supra note [123]. Consistent seriesprovisions across all of those acts may be a worthwhile objective. See also Rutledge,Again for the Want of a Theory, supra note [123] at 315.125 USTA § 501. The initial certificate of trust is not required to list the initialtrustees (see USTA § 201); rather, the only requirement is that an individual trustee signthe certificate of trust (USTA § 203(a)). There will need to be a mechanism for thedesignation of those initial trustees. The governing instrument should address themechanism by which additional or replacement trustees will be appointed, elected orotherwise designated. See USTA § 104(e)(6)(C). There is no requirement that any
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statutory trust, have such powers as are conferred by the governinginstrument,126 such other powers as are necessary or convenient withrespect to the management of the statutory trust and all other powersconferred by USTA.127 These powers may be restricted or limited in thegoverning instrument. Given USTA section 501 is not referenced inUSTA section 103(f), the trust instrument could provide for governance ofa statutory trust other than by a “trustee.”
Absent contrary private ordering in the governing instrument, thetrustees act on a per capita basis with the majority controlling128 either at ameeting or when acting by written consent.129 In addition to the ability tovote in person, trustees may vote by proxy provided the proxy is set forthin a signed record.130
USTA section 504 details certain protections available to thirdparties who deal with a statutory trust through one or more of its trustees.
trustee be resident in the jurisdiction of formation. Contrast DEL. CODE. ANN. tit. 12 §3807(a).126 The term “governing instrument” is defined at USTA section 102(6) as being thecertificate of trust and the “trust instrument,” with that term being defined at USTAsection 102(18). Essentially, the trust instrument must be in a record form, does not itselfencompass the certificate of trust, and otherwise addresses the governance of the affairsof the statutory trust. The trust instrument may embody the trust agreement, a declarationof trust, and by-laws.127 USTA § 502.128 USTA § 503(1). Accord RUPA § 401(f), 6 U.L.A. 133 (2001); ULCAA § 816,6A U.L.A. 253 (2008).129 USTA § 503(2). It is not required that trustees act by unanimous writtenconsent when acting outside a meeting. Contrast MODEL BUS. CORP. ACT § 8.21;ULCAA § 812(a), 6A U.L.A. 251 (2008). To the extent that any trustee does not vote infavor of the matter under consideration, they are entitled to notice of the action taken.USTA § 503(2).130 USTA § 503(3). State drafting committees may want to consider, as a policymatter, the wisdom of permitting the trustees, who stand in a fiduciary relationship withthe statutory trust, to vote by proxy. In the analogies situation of corporate directors,voting by proxy is not permitted. See 2 WILLIAM MEADE FLETCHER, FLETCHERCYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS § 427. Whether the same ruleshould apply in a statutory trust organized in a particular jurisdiction is a policydetermination upon which reasonable minds may differ.
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Initially, a person who in good faith assists a trustee as to an action towhich they are unaware that the trustee is exceeding or improperlyexercising their authority has no liability to the statutory trust for havingdone so; they are treated as having transacted with a trustee who isproperly exercising their power.131 The same rule applies with respect to aperson who in good faith and for value deals with the trustee;132 they arenot obligated to inquire as to the extent of the trustee’s power or thepropriety of the exercise thereof.133 A person who in good faith deliversproperty to the trustee is not charged with an obligation to ensure to itsproper application thereafter.134 Finally a person who is withoutknowledge that a purported trustee no longer serves in that capacity (i.e.,is now a former trustee) and in good faith assists them, or in good faithand for value deals with them, is afforded the same protections fromliability as if the former trustee were still a trustee.135
A trustee is required to act in “good faith” and in a manner thetrustee reasonably believes to be in the best interests of the statutory trust.A trustee must discharge the duties imposed “[w]ith the care that a personin a similar position would reasonably believe appropriate under similarcircumstances.”136 These standards warrant careful parsing.
131 USTA § 504.132 Id.133 USTA § 504(b). As the comment notes, this provision overrides the commonlaw that a third party is charged with constructive notice of the trust instrument and itscontents and thereby any limitations upon the trustee’s power. See AUSTIN WAKEMANSCOTT, WILLIAM F. FRATCHER AND MARK L. ASCHER, 5 SCOTT AND ASCHER ON TRUSTS§ 29.2 (5th Ed. 2008); see also RUPA § 303(e), 6 U.L.A 108 (2001) (deemed knowledgeof limitations on authority to transfer real property set forth in filed statement ofpartnership authority).134 USTA § 504. See also RESTATEMENT (SECOND) OF TRUST § 321 (1959).135 USTA § 504(d). It bears noting that the former trustee, who notwithstandingthat status continues to hold himself out as having the capacity to represent the statutorytrust will be exposed to liability for breach of the warranty of authority. SeeRESTATEMENT (THIRD) OF AGENCY § 6.10 (2007).136 USTA § 505.
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The obligations of good faith and loyalty137 are qualified by section403 of USTA, which provides that in any statutory trust with series, solong as there is a trustee who is obligated to consider the interest of thetrust and all series thereof, other trustees may be charged to look to thebest interest of the statutory trust only or of one or more series thereof.138
The recitation of “good faith” as a standard of conduct isinteresting and constitutes a departure from other recent uniform acts. Ineach of RUPA, ULPA and RULLCA, good faith is set forth as a freestanding obligation, distinct from the recitations of the duty of care and theduty of loyalty.139 In those instances, the obligation of good faith, recitedin the formula of “good faith and fair dealing,” is a modifier to the mannerin which the duties and obligations under the Act and the controllingagreement are exercised and/or discharged.140 It is not clear whether, bydeparting from the formula employed in other recent uniform businessentity acts, there should exist an independent obligation of good faithunder USTA that goes beyond the contractual concepts employed inRUPA and other acts of its form. Consequently, states considering theadoption of USTA that desire consistency between the various businessentity laws may elect to modify USTA section 505(a) to delete thereference to good faith and to supplement that same provision by adoptinglanguage similar to RUPA section 404(d).
The obligation of loyalty, set forth as a requirement that the trusteeact in what he or she “reasonably” believes to be in the best interest of thestatutory trust, manifests an objective standard that is in accord with the
137 The duty of loyalty is the requirement to act “in a manner the trustee reasonablybelieves to be in the best interests of the statutory trust.” USTA § 505(a).138 See also supra notes [170] through [171] and accompanying text.139 See RUPA § 404(d), 6 U.L.A. 143 (2001); ULPA § 408(d), 6A U.L.A. 439(2008); RULLCA § 409(d), 6B U.L.A. 489 (2008).140 As set forth in the official comment to RUPA section 404(d), “It is stated thatthe obligation of good faith and fair dealing is a contract concept, imposed on the partnersbecause of the consensual nature of the partnership…. It is not characterized, in RUPA asa fiduciary duty arising out of the partners’ special relationship. Nor is it a separate andindependent obligation.” No such explanation is included in USTA. For an expansivereview of “good faith and fair dealing” under Delaware law, see Airborne Health, Inc. v.Squid Soap, LP., ___ A. 2d ___ (Del. Ch. 2009).
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Revised Model Business Corporation Act.141 This objective standard ofreasonableness differs from the subjective “honestly” standard adoptedunder Delaware corporate and other law.142 States that desire to use thesubjective “honestly” standard in their business entity laws as opposed toan objective “reasonably” standard will need to modify USTA section505(a) accordingly. Alternatively, certain states may find that substitutingan expanded recitation of the duty of loyalty as set forth in, for example,RUPA section 404(b), may be appropriate.143 The obligation of the trusteeto act “[w]ith the care that a person in a similar position would reasonablybelieve appropriate under similar circumstances,”144 is akin to the formulaemployed in other recent uniform acts.145
It is of critical importance that state drafting committees recognizethat the standard of care set forth in USTA section 505 cannot be modifiedby private ordering. Rather, USTA section 103(f)(5) only permits agoverning instrument to define the standards by which good faith, the bestinterest of the statutory trust, and the care of a person in a similar positionare to be determined, subject to a requirement that such standards they arenot manifestly unreasonable.146 To the extent that states modify USTA
141 The Revised Model Business Corporation Act section 8.30 is cited in the officialcomment to USTA section 505 as being the source for this provision.142 See Aronson v. Lewis, 473 A.2d 805 (Del. 1984); KY. REV. STAT. ANN. §271B.8-300(1)(c) (substituting “honestly” for “reasonably” in adoption of the ModelBusiness Corporation Act § 8.30).143 Further, states making that adoption may determine to modify the languageemployed in RUPA § 404(b) to make it non-exclusive. See, e.g., KY. REV. STAT. ANN. §362.1-404(1) (Substituting “includes but is not limited to” for “is limited to”).144 USTA § 505(b).145 See, e.g., RULLCA § 409(c), 6B U.L.A. 489 (2008) (“act with the care that aperson in a like position would reasonably exercise under similar circumstances….”).146 A failure of USTA (a failure that continues the tradition of RUPA, ULPA,ULLCA and RULLCA) is that neither the text nor the official comments define what iseither “unreasonable” or “manifestly unreasonable” as those terms are utilized(presumably to different effect) in USTA sections 103(f)(5), (6), (7), (11) and (12). InSouthcentral Bell Telephone Co. v. Public Service Commission, 702 S.W.2d 447 at 451(Ky.App. 1995), it was held that the decision of an administrative agency would beunreasonable “when it is determined that the evidence presented leaves no room fordifference of opinion among reasonable minds.” That same formulation was employed inThurman v. Meridian Mutual Insurance, Co., 345 S.W.2d 635 at 639 (Ky. 1961). The
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section 505, USTA section 103(f)(5) will require correspondingmodification. To the extent that USTA section 103(f)(5) is retained,147
whatever standards are established will be binding across the range ofstatutory trusts organized in that jurisdiction.
Trustees and other representatives of a statutory trust are not liableto either it or its beneficial owners for the breach of any duty to the extentsuch results from the good faith reliance on the governing instrument, arecord of the statutory trust, or a professional expert opinion report orstatement.148
courts do not appear to have rendered a decision yet on what constitutes a provision thatis “manifestly unreasonable” as employed in RUPA section 103(b) and other uniformacts adopting its formula. In the decision rendered in Morgan Buildings and Spas, Inc. v.Turn-Key Leasing, Ltd., 97 S.W.3d 871 at 880 (Tx. Ct. App. 2003), the Court looked toBlack’s Law Dictionary with respect to the definition of “manifest” as utilized in“manifestly unreasonable” as defined in the UCC, determining that manifest constitutesthat which is:
Evident to the senses, especially to the sight, obvious to theunderstanding, evident to the mind, not obscure or hidden, andsynonymous with open, clear, visible, unmistakable, indubitable,indisputable, evident, and self-evident.
The Morgan court, did not, however proceed to give a comprehensive definition of“manifestly unreasonable.” The decision rendered in Newsome v. Billips, 671 S.W.2d252, 255 (Ky. App. 1984) in which the Court held that it was “manifestly unreasonable”to repair a structure where the costs of repair far exceeded the value of the structure afterthe repairs would be completed, is of little assistance in this context. It is worth notingthat “unreasonable,” understood here to refer to an agreement where either one or both ofthe parties acted irrationally, is distinct from an agreement that is “unconscionable,” thatbeing one that is one-sided or oppressive, See, e.g., Conseco Finance Servicing Corp. v.Wilder, 47 S.W.3d 335, 341 (Ky. App. 2001).147 It is certainly conceivable that a state could adopt USTA either with or withoutmodifying section 505 but not adopt USTA section 103(f)(5). The standard of careimposed upon trustees will then be based entirely upon private ordering in the governinginstrument. See, e.g., DEL. CODE ANN. tit. 12, § 3806(e) (permitting the governinginstrument of a Delaware Statutory Trust to eliminate all liability for breaches of duty,including a fiduciary duty, but not breach of the contractual covenant of good faith andfair dealing) and DEL. CODE ANN. tit. 6, § 18-1101(a) (allowing the limited liabilitycompany agreement to modify or entirely eliminate the fiduciary duties otherwiseexisting in limited liability companies).148 USTA § 506. Accord RULLCA § 409(c), 6B U.L.A. 489 (2008).
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USTA section 507 sets forth the rules pursuant to which a trusteeor other affiliate of a statutory trust may do business with it. Initially, thesection begins by defining a “covered party” as any of a “trustee, officer,employee, or manager of a statutory trust or a related person of a trustee,officer, employee or manager.”149 The Act does not define the criteria thatwill be used in determining whether one is a “related person” who isthereby a “covered party.” While a comprehensive definition of such maynot be possible, a comment to this section would have been helpful. Forexample, we would assume that the single-member LLC wholly owned bya trustee would constitute a related person while, conversely, we wouldassume that a publicly traded corporation in which a trustee is a 3% ownerbut is neither a director nor an officer, would not be a related person.Such conclusions, however, are simply conjuncture and will need to bedeveloped through the courts.150
A “covered party” may transact business with the statutory trust aswell as anyone who does not fall within the scope of a “covered party.”151
However, all transactions with a “covered party” are voidable by thestatutory trust unless the covered party satisfies their burden ofdemonstrating that the transaction is “fair.”152 It bears noting that theapproval of an interested transaction with a covered party is not, ab initio,binding (i.e., non-voidable by the statutory trust) simply because it issanctioned by the disinterested trustees153 or by the beneficiaries.154 Theburden is on the covered party to prove the fairness of the transaction; 155 a
149 USTA § 507(a). See USTA § 607 regarding transactions with a beneficialowner who is not a covered person.150 As USTA section 507 is not referenced in USTA section 103(f), the governinginstrument is free to define who will (and will not) constitute as to that statutory trust a“covered party” and/or a “related person.”151 USTA § 507(b).152 USTA § 507(c).153 Contrast MODEL BUS. CORP. ACT § 8.61(b)(1); KY. REV. STAT. ANN. § 271B.8-310(1)(a).154 Contrast MODEL BUS. CORP. ACT § 8.61(b)(2); KY. REV. STAT. ANN. § 271B.8-310(1)(b).155 This rule is in conflict with those of a minority of the states which place theburden upon the party complaining of an interested transaction to demonstrate the
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covered party can easily avoid this burden by electing to not do businesswith the statutory trust. Given USTA section 507 is not referenced insection 103(f), there are no limitations imposed upon the degree to whichthe governing instrument may modify the rules with respect to interestedtransactions. For example, the governing instrument could adopt rulesakin to those that appear in the Model Business Corporation Act to theeffect that an interested transaction may be sanctioned by the disinterestedtrustees. As a result of the flexibility provided as to USTA section 507,state drafting committees need to consider whether the fiduciary standards,including the duty of loyalty under USTA section 505, is appropriategiven that standard for approval and waiving of conflict of interesttransactions are subject to private ordering. Assuming that themodifiability of USTA section 507 is appropriate, state draftingcommittees may want to consider a modifiable standard under USTAsection 505.
A trustee has a right to receive information from both the statutorytrust and the other trustees related to the discharge of the trustee’s duties;these rights may be enforced in an appropriate court.156 The right toinformation is not subject to restriction by the governing instrument,157 butit may prescribe standards on how to determine what constitutes“reasonably related,” provided such limitations are not manifestlyunreasonable.158 With respect to a trustee with responsibilities limited toless than the entirety of the statutory trust and/or all of the seriesthereof,159 absent private ordering to the contrary, their inspection rightswill be limited to those matters for which they have oversight.
A statutory trust is empowered to indemnify and hold harmless atrustee or other person for claims arising as a result of that person’srelationship with the statutory trust, provided, however, thatindemnification may not be provided if the claim arises from that person’s
unfairness thereof. See, e.g., Krukemeier v. Krukemeier Mach. & Tool Co., 551 N.E.2d885, 888 (Ind. App. 1990).156 USTA § 508.157 USTA § 103(f)(7).158 Id.159 See USTA § 403.
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“bad faith, willful misconduct, or reckless indifference.”160 Theselimitations on indemnification, namely, that it may not be made availablein cases of bad faith, willful misconduct or reckless indifference,161 differfrom the standard of conduct set forth in USTA section 505, implying thatindemnification may be provided for conduct that itself breaches thestatutory standard of care. It bears noting that the USTA does not of itselfcompel indemnification.162
A statutory trust may advance the expenses incurred by trusteesand other persons in connection with claims made by reason of theirrelationship with the statutory trust. This power is conditioned upon thatperson or another acting on their behalf submitting an undertaking torepay the amounts advanced if it is determined that the person’s conductamounted to bad faith, willful misconduct or reckless indifference.163
There is no requirement that the undertaking be in writing nor that it besecured.164 Individual state drafting committees may want to considerthese and similar requirements. It should be noted that the thresholdconduct which would necessitate the return of fees advanced cannot, atleast as implied by USTA, be subject to stricter requirements.165 Statedrafting committees may desire to permit a particular statutory trust theflexibility to require reimbursement of funds advanced at a lower level ofculpability.
USTA section 509(c) provides that any provision of a governinginstrument is unenforceable to the extent it relieves a trustee from liability
160 USTA § 509(a). State drafting committees may want to add a prohibition forindemnification for “any transaction from which the trustee received an improperpersonal benefit.” See MODEL BUS. CORP. ACT. § 2.02(b)(4); KY. REV. STAT. ANN. §271B.2-020(2)(d)4.161 These maximum thresholds with respect to indemnification are not subject tomodification in the governing instrument. See USTA § 103(f)(8).162 Contrast RULLCA § 408(a) 6B U.L.A. 487 (2008) (an LLC “shall …indemnify”).163 USTA § 509(b).164 Contrast MODEL BUS. CORP. ACT § 8.53(a)(2) (requiring that the undertaking bein writing).165 USTA §103(f)(8).
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for conduct involving bad faith, willful misconduct or recklessindifference. While this appears to set the maximum range that privateordering can modify the fiduciary duties of care and loyalty,166 thestandards imposed on trustees by USTA section 505 are not subject tomodification in the governing instrument. How USTA section 505 relatesto USTA section 509(c) is not explained in the official comment. Statedrafting committees need to consider the inter-relationship with USTAsection 509(c) in addition to whether or not to modify USTA section 505.
The governing instrument of a statutory trust may authorize aperson to provide binding instructions to a trustee or other personotherwise charged with management of the statutory trust.167 Such adirected trustee or other representative of the statutory trust is bound tofollow those directions unless they are “manifestly contrary” to the termsof the governing instrument or where the trustee168 knows or has reason toknow that following those directions would constitute a “serious breach”of fiduciary duty by the trustee.169 What constitutes a “serious breach” offiduciary duty, necessarily implying that there exists a category of actionsthat while constituting a breach of fiduciary duty are not in and ofthemselves “serious,” is not addressed. It remains to be seen whether itwill be practicable to follow the advice of the comment to the effect thatdirection be sought from a court. Further, the comment to the effect that a“serious breach” of fiduciary duty is intended to exclude breaches that arethemselves inconsequential, immaterial or technical arguably confuses theactuality of the breach with the determination of what damages might beowing consequent to the breach. Whether the rule de minimus ne curat lexshould apply with respect to a fiduciary in order to determine whether ornot a breach has taken place is open to question.
166 See, e.g., DEL. CODE ANN. tit. 8, § 102(b)(7); MODEL BUS. CORP. ACT §2.02(b)(4); KY. REV. STAT. ANN. § 271B.2-020(2)(d).167 USTA § 510(a).168 While the balance of USTA section 510 typically refers to a “trustee or otherperson,” USTA section 510(c) does not address an “other person” with respect to certaincarve-outs from the requirement to follow the directions given. To provide consistency,the addition of “other person” to section 510(c) may be considered by state draftingcommittees.169 USTA § 510(c). The ability to modify this provision is limited by USTAsection 103(f)(9).
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The governing instrument may provide that the person directing atrustee or other representative of the statutory trust is to be or treated as atrustee or one owing duties, including fiduciary duties, to the statutorytrust or the beneficial owners thereof.170 The wording of this provision isimportant. It does not provide that the person giving direction to, forexample, a directed trustee, is not to be treated as a trustee andautomatically relieved of, for example, fiduciary obligations. Rather, itprovides that the governing instrument may address the situation. Thestatute does not provide a default, one way or the other, as to the propercharacterization of the person or party providing the instructions to thedirected trustee. State drafting committees may want to considermodifying the language of USTA section 510(b) to provide a default ruleby adding language to the effect of “Unless otherwise provided in agoverning instrument, then ….” The default rule that completes theprovision will be based upon the policy determination of the individualstate.171
Trustees may delegate duties172 provided the delegation is effectedin accordance with the applicable standard of care. 173 The trustee mustdetermine the scope and terms of the delegation and periodically reviewthe agent’s performance and compliance with the terms of thedelegation.174 The agent to whom a trustee has delegated their authorityowes a duty of reasonable care to the statutory trust to comply with theterms of the delegation, an obligation that presumably encompasses the
170 USTA § 510(b).171 See also In re USACafes, L.P. Litigation, 600 A.2d 43 (Del. Ch. 1991) (directorsof a corporate general partner of a limited partnership personally owed fiduciary duties tothe limited partners).172 The capacity of an individual trustee to delegate duties and powers to a co-trustee is separately referenced at USTA section 511(b). State drafting committees maywant to consider whether what is currently subsection (b) should be eliminated, with thatcapacity noted by modifying USTA section 511(a) to read “A trustee may delegate dutiesand powers, including to a co-trustee.”173 USTA § 511. See also USTA § 505(b). State drafting committees, in order toachieve greater consistency of the language between the two provisions, may want toinsert “that” after “care” in USTA section 511(a).174 USTA § 511(a).
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execution upon the authority delegated.175 Where a trustee satisfies theirobligations in making a delegation, they are not liable to either thestatutory trust or to beneficial owners for an agent’s failure with respect toa delegated function.176 By accepting a delegation from a trustee, theagent submits to the jurisdiction of the courts of the state pursuant towhich the statutory trust is organized.177
Section 512 of USTA addresses who constitutes a disinterestedtrustee when the trust is registered as an investment company.178 Thisprovision precludes an argument to the effect that, although a particulartrustee was disinterested in accordance with the terms of the InvestmentCompany Act, such trustee may still be interested under the USTA.
Article 6 - Beneficiaries and Beneficial Rights
USTA section 601 sets forth certain of the characteristics of abeneficial interest in a statutory trust, namely that it:
is freely transferrable;179
175 USTA § 511(c). State drafting committees may want to supplement thisprovision to address the agent’s performance and the resulting liability for any failuretherein to the statutory trust. Presumably, any failure could be enforced, in addition tothe trustees, by the beneficial owners through a derivative action.176 USTA § 511(d). State drafting committees may want to reverse this policydetermination and in accordance with generally applicable law on agent delegation holdthe delegating trustee liable for the sub-agent’s performance. See RESTATEMENT (THIRD)OF AGENCY § 3.15 cmt d (“An appointing agent is responsible to the principal for thesubagent’s conduct.”)177 USTA § 511(e). While this provision goes as far as it does, state draftingcommittees should to note that there is no express provision to the effect that a trustee, inagreeing to serve in that office on behalf of a statutory trust, submits to the jurisdiction ofthe state courts in the jurisdiction of organization. Compare DEL. CODE ANN. tit. 10, §3114 (directors of a Delaware corporation are subject to the jurisdiction of the Delawarecourts.)178 USTA § 512.179 USTA § 601(a). Accord RUPA § 503(a)(1), 6 U.L.A. 156 (2001); VA. CODE §13.1-1226(D). This is simply a default rule, and the governing instrument may limit abeneficial owner’s right to transfer the beneficial interest. See USTA § 103(e)(2). Incontrast with partnership and LLC law (see ULCAA § 603, 6A U.L.A. 228 (2008);
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is personal property regardless of the nature of theproperty held by the trust;180
is not itself an interest in any property of thestatutory trust; 181and
affords no preemptive rights with respect to otherbeneficial interest or other interest issued by thestatutory trust.182
As a default rule, the beneficial owners of a USTA statutory trusthave voting rights only with respect to amending the governinginstrument183 and the merger, conversion or dissolution of the statutorytrust.184 This fact explains the “de minimus” treatment given in USTA tobeneficial owner voting rights. It will often be the case when a USTAstatutory trust is utilized as the vehicle for organization of significantbusiness ventures that the governing instrument will need to providegreater specificity both as to how voting takes place and to expand thematters upon which the beneficial owners may vote. As the default rule,
RUPA § 503(a)(3), 6 U.L.A. 156-57 (2001); RULLCA § 502(a)(3), 6B U.L.A. 496(2008)) and certain business trust acts (see, e.g., WYOMING STAT. § 17-23-107(d)), theeconomic and the management rights embodied in a beneficial interest in a statutory trustorganized under USTA are unitary; the transferee of a beneficial interest will enjoy all ofthe economic rights and all of the management rights of the transferor. Such is not thecase under either partnership or LLC law, pursuant to which, absent private ordering tothe contrary, the transferee of a partner/member does not enjoy the right to participate inthe business of the partnership/LLC. See RUPA § 503(a)(3), 6 U.L.A. 157 (2001);ULLCA §502, 6B U.L.A. 602 (2008); RULLCA § 502(a)(3), 6B U.L.A. 496 (2008); seealso Thomas E. Rutledge, Assigning Membership Interests: Consequences to theAssignor and Assignee, 12 J. PASSTHROUGH ENTITIES 35 (July./Aug. 2009).180 USTA § 601(b). Accord RUPA § 502, 6 U.L.A. 156 (2001); ULCAA § 601(1),6A U.L.A. 226 (2008); RULLCA § 501, 6B U.L.A. 496 (2008); VA. CODE § 13.1-1226(C).181 USTA § 601(c). Accord RUPA § 501, 6 U.L.A. 155 (2001); VA. CODE § 13.1-1226(B)(1).182 USTA § 602(d). Accord MODEL BUS. CORP. ACT. § 6.30(a).183 Defined at USTA section 102(6).184 See USTA §§ 103(d) (amendment of governing instrument), 707(a) (approval ofmerger), 703(a) (approval of conversion) and 801 (approval of dissolution).
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beneficial owners act by a majority of the beneficial interests.185 Bymajority vote or other threshold established by private ordering as thevalid action of the beneficial owners, they may act without a meeting bywritten consent.186 Beneficial owners may vote in person or by proxy,provided the proxy is in a signed record.187
A beneficial owner’s contribution to the statutory trust inconsideration for the receipt of a beneficial interest may be in the form ofcash, property or services rendered, or an obligation to contribute cash,property or services in the future.188 Further, a beneficial interest may beissued by the statutory trust without a beneficial owner making acontribution or undertaking an obligation to make one in the future.189
185 USTA § 602(1). Contrast RULLCA § 407(b)(3), 6B U.L.A. 483 (2008)(matters in the ordinary course determined by a per capita majority of the members),RUPA §§ 401(c), (j), 6 U.L.A. 133 (2001) (matters in the ordinary course determined bya per capita majority of the partners).186 USTA § 602(2). Drafting committees should note that this provision, as drafted,states that notice need not be provided to those beneficial owners not necessary to reachthe required voting threshold. As such, even as they may not have the capacity to affectthe ultimate outcome, they lose as well the ability to argue for a contrary course of action.A notice of the action taken by the beneficial owners without a meeting must be given tothose who do not provide their consent. Accord MODEL BUS. CORP. ACT § 7.04(f).187 USTA § 602(3). Absent private ordering to the contrary, a per capital majorityof the beneficial owners can amend the governing instrument. See also USTA § 103(d).Contrast RUPA § 401(j), 6 U.L.A. 133 (2001) (absent private ordering to the contrary,unanimous approval of the partners required to amend the partnership agreement);RULLCA § 407(5), 6B U.L.A. 484 (2008) (absent private ordering to the contrary,unanimous approval of the members required to amend the operating agreement).188 USTA § 603(a). Accord RULLCA § 402, 6B U.L.A. 479 (2008). USTA doesnot contain a statute of frauds as to an agreement to contribute. Contrast VA. CODE §13.1-1224(D) (“No promise of a beneficial owner to contribute to a business trust isenforceable unless set out in a writing signed by the beneficial owner.”). State draftingcommittees considering USTA will want to review whether such a provision should beadded.189 USTA § 603(a). The capacity to create beneficial owners without therequirement of a contribution to the statutory trust facilitates, for example, the creation ofa special beneficial owner whose approval is required for a bankruptcy filing in order tocreate a “bankruptcy remote” statutory trust. Note, however, that as a statutory trust maynot be utilized in the situation that is predominately donative (USTA § 302), USTAsection 603(a) should not be interpreted as making the statutory trust equivalent to adonative trust in which no consideration is provided the trust by the beneficiaries.
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The inability to perform on an obligation to make a contribution to astatutory trust, including inability occasioned by death or disability, doesnot excuse the beneficial owner from that obligation.190 Where therequired contribution was to be in the form of property or services, at theoption of the statutory trust, the beneficial owner may be obligated tocontribute cash equal in value to the contribution obligation undertakenbut not satisfied,191 or the statutory trust may insist upon specificperformance.192 The governing instrument may also specify theconsequences to be suffered by a beneficial owner who fails to make arequired contribution or otherwise comply with the terms and conditionsof the governing instrument.193
Once a distribution has been declared, the beneficial owner has thestatus of a general creditor of the statutory trust and, as such, the remediesafforded to unsecured creditors are available.194 Note however, that abeneficial owner, absent a declaration of distribution by the trustees orotherwise in accordance with the governing instrument, has no interest inthe underlying assets of the statutory trust.195 A beneficial owner is notentitled to receive a distribution in a form other than cash,196 but astatutory trust has the option of making distributions in kind provided thatthe assets so distributed are fungible and the values of the various assetsdistributed amongst the beneficial owners equal their respective interests
190 USTA § 603(b). Accord RULLCA § 403(a), 6B U.L.A. 479 (2008).191 Id.192 USTA § 603(b). The specific performance option does not exist in, for example,RULLCA. Note that USTA does not afford creditors who have in extending credit reliedupon a contribution obligation the capacity to enforce that obligation (see RULLCA §403(b), 6B U.L.A. 479 (2008)); state drafting committees may want to consider addingsuch a provision.193 USTA § 603(c). Accord DEL. CODE. ANN. tit. 6, § 18-1101; VA. CODE § 13.1-1224(d).194 USTA § 604(a). Accord RULLCA § 404(d), 6B U.L.A. 480 (2008); ULPA §507, 6A U.L.A. 446 (2008).195 See USTA § 601(c). Accord ULPA § 504, 6A U.L.A. 445 (2008). Statedrafting committees may find that a more direct statement of this rule is appropriate. See,e.g., RULLCA § 404(b), 6B U.L.A. 480 (2008).196 USTA § 604(b). Accord RULLCA § 404(c), 6B U.L.A. 480 (2006).
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in the statutory trust.197 The governing instrument is empowered to set adistribution record date.198 A statutory trust is specifically authorized toacquire, whether by purchase, redemption or otherwise, the beneficialinterests of the trust, and such interests are then cancelled.199 A governinginstrument may provide the means by which a beneficial ownership willbe determined and evidenced,200 presumably including mechanisms suchthe issuance of certificates and book entry.
USTA section 606 applies only to those statutory trusts thatthrough private ordering have provided, in contrary to USTA section601(a), that the beneficial interest in the statutory trust are not freelytransferable, whereupon a charging order will be the appropriatemechanism by which the creditor of a beneficial interest holder maycollect on a judgment. Where the default rule of free transferability of thebeneficial interest is not modified by private ordering, section 606 ofUSTA has no application.
In other unincorporated business entity forms in which the non-assignability of the right to participate in the management of the venture,sometimes referred to as the right to “pick your partner,” is embodied inthe act, the creditor of a partner/member is provided the right to receivedistributions to secure satisfaction of a judgment without succeeding to thepartner or member’s right to participate in management. 201 Assuming the
197 USTA § 604(c). Accord RULLCA § 404(c), 6B U.L.A. 480 (2008). ContrastULPA § 812(b), 6A U.L.A. 486 (2008) (in limited partnership, liquidating distributionsare to be paid in cash even though interim distributions (ULPA § 506, 6A U.L.A. 445(2008)) may be made in kind).198 USTA § 104(e)(14).199 USTA § 605. None of RUPA, ULPA or RULLCA specifically authorize theredemption of partnership/membership interests in those forms of business organization,although individual state statutes may do so. See, e.g., FL. STAT. § 608.432(5)(redemption of interest in LLC). Assuming a statutory trust has not been utilized for theorganization of an investment company subject to the Investment Company Act and itsrequirements as to redemptions (see, e.g., 15 U.S.C. § 80(a)-22(e)), by private ordering adifferent rule as to redemptions may be put in place.200 USTA § 103(e)(1).201 With respect to the charging order in general, see Thomas E. Rutledge,Charging Orders: Some of What You Ought to Know (Part I), 9 J. PASSTHROUGHENTITIES 15 (Mar./Apr. 2006); (Part II), 9 J. PASSTHROUGH ENTITIES 21 (Jul./Aug. 2006)
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beneficial interests in the statutory trusts are non-transferable,202 thejudgment creditor of a beneficial owner is restricted to a charging order.The charging order constitutes a lien upon the beneficial interest holder’sright to distributions from the statutory trust.203 A receiver may beappointed to receive the distributions and enforce the beneficial owner’sright to a distribution,204 and the court issuing the charging order may“make all other orders necessary to give effect to the charging order.”205 Itbears noting that the capacity of the court to issue orders in connectionwith the enforcement of its charging order is limited to insuring that thejudgment creditor receives the distributions as declared by the statutorytrust;206 it does not extend to the right to interfere with the internalmanagement of the statutory trust207 such as by compelling a
and Thomas E. Rutledge, Carter G. Bishop and Thomas Earl Geu, Foreclosure andDissolution Rights of a Member’s Creditors: No Cause for Alarm, 21 PROBATE &PROPERTY 35 (May/June 2007).202 Whether the restrictions imposed by the governing instrument on the transfer ofthe beneficial interests are of the type and magnitude appropriate for application of thecharging order provision is determined by reference to USTA section 606(a). This“toggle” as to the application of the statutory trust rule depending upon the transferabilityor not of the beneficial interest is unique in uniform unincorporated business entity law.While the interest in a partnership, limited partnership or LLC are, by statutory default,non-transferrable under each of RUPA, ULPA and RULLCA (and as well theirrespective predecessor acts), the application of the charging order provisions of the thosevarious acts (RUPA § 504, 6 U.L.A. 160 (2001); ULPA § 703, 6A U.L.A. 463 (2008);RULLCA § 503, 6B U.L.A. 498 (2008)), are no less applicable when, by privateordering, free transferability of the interest is provided.203 USTA § 606(c).204 USTA § 606(b)(1). See also USTA § 604(a).205 USTA § 606(b)(2). Accord RULLCA § 503(b)(2), 6B U.L.A. 498 (2008);ULPA § 703(a), 6A U.L.A. 463 (2008); RUPA § 504(a), 6 U.L.A. 160 (2001); ULCAA §605(b)(2), 6A U.L.A. 233 (2008).206 See USTA § 604.207 As such, the terms of a Colorado charging order reproduced in Alan S. Gassmanand Sabrina M. Moravecky, Charging Orders: The Remedy for Creditors of DebtorPartners, 36 ESTATE PLANNING 21 (Dec. 2009), restricting the ability of the organizationto make loans, capital acquisitions, sales and other transactions involving interest in theorganization and requiring disclosure of historical confidential financial and tax records,would be under the Act invalid.
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distribution208 or redemption. The charging order is redeemable by eitherthe statutory trust or another beneficial owner, whereupon the redeemerwill step into the position of the judgment creditor, including the benefit ofthe previously issued charging order.209 A beneficial owner or transfereeof a beneficial interest is not deprived of the benefit of any exemptionlaws applicable to a beneficial interest.210 The USTA section 606 right ofa creditor to such a charging order, and presumably the effect of that orderonce entered, are not subject to contrary private ordering,211 butpresumably the governing instrument could provide additional provisionssuch as, for example, waiving any right of the statutory trust or itsbeneficial owners to redemption.
State drafting committees should carefully consider the operativeprovisions of section 606. Notwithstanding the necessary “toggle”provision of USTA section 606(a), there exists no policy basis for acharging order formula that differs from that embodied in state adoptionsof RUPA, ULPA, RULLCA and otherwise. Rather, the charging orderprovisions of all of the unincorporated business entity acts in a particularstate should consistently provide the same remedies to creditors. Further,USTA’s lack of the exclusivity provision that appears in the other uniformacts212 is troubling and highlights an additional point of cross-entityconsistency that should be achieved.
A beneficial owner or a person related thereto may transactbusiness with a statutory trust on the same terms as any person who is nota beneficial owner.213
208 See USTA § 604(b).209 USTA § 606(d).210 USTA § 606(e). Accord ULCAA § 605(f), 6A U.L.A. 234 (2008); RUPA §504(d); 6 U.L.A. 160 (2001).211 USTA § 103(f)(1).212 See, e.g., RUPA § 504(e), 6 U.L.A. 160 (2001); RULLCA § 503(g), 6B U.L.A.499 (2008); ULCAA § 605(g), 6A U.L.A. 234 (2008); ULPA § 703(e), 6A U.L.A. 463(2008). If added to a state adoption of USTA, an exclusivity provision will need to beconditioned upon the application of section 606.213 USTA § 607. See USTA section 507 for the rules applicable to transactionsbetween a statutory trust and a trustee thereof.
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A beneficial owner has the right to receive information from thestatutory trust or a trustee thereof as it relates to such affairs of thestatutory trust as are reasonably related to the beneficial owner’s interesttherein.214 While the rules with respect to the availability of informationare not subject to restriction in the governing instrument, it may includestandards on how “reasonably related to the beneficial owner’s ability toenforce its rights as a beneficial owner” will be determined, provided suchare not “manifestly unreasonable.”215
A beneficial owner may bring suit on behalf of the beneficialowner themselves or on behalf of the statutory trust. In the former case,the beneficial owner may bring an action against the statutory trust216 toaddress injury sustained by or enforce an obligation owed to the beneficialowner. The availability of such a direct action is contingent upon thebeneficial owner being able to prevail without showing an injury or breachof trust owed to the statutory trust itself.217 Alternatively, a beneficialowner may bring a derivative action on behalf of the statutory trust, andany proceeds or other benefits of that action will belong to the trust andnot the beneficial owner bringing the action on its behalf.218 Further,provided the action is successful, the plaintiff beneficial owner’sreasonable expenses and attorneys’ fees may be recovered from thetrust.219
214 USTA § 608.215 USTA § 103(f)(11).216 See also USTA § 302 (the statutory trust is an entity distinct from its trusteesand beneficial owners) and USTA § 308(a) (a statutory trust may sue and be sued in itsown name).217 USTA § 609(a). State drafting committees, in their consideration of USTAsection 609(a); may want to consider RULLCA section 901 (6B U.L.A. 522 (2008)) foran alternative and more detailed recitation of this principle. The comments to USTAsection 609(a) identify as its source ULPA section 1001(a). RULLCA section 901 isitself a further development of ULPA section 1001; in effect, USTA section 609(a) isbased upon the penultimate development of the uniform language.218 USTA § 609(e). Accord RULLCA § 906(a), 6B U.L.A. 526 (2008); ULCAA §1305(a), 6A U.L.A. 298 (2008); ULPA § 1005(a), 6A U.L.A. 502 (2008).219 USTA § 609(f). Accord RULLCA § 906(b), 6B U.L.A. 526 (2008); ULCAA §1305(b), 6A U.L.A. 298 (2008); ULPA § 1005(b), 6A U.L.A. 502 (2008).
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In order to initiate a derivative action the beneficial owner musthave been a beneficial owner when the conduct giving rise to the cause ofaction occurred, and at the time the action is commenced.220 Further, thebeneficial owner must have made demand upon the trustees forinvestigation and redress, or demand must have been futile.221 The dateand content of the demand or the reason for which the demand should beexcused as futile must be detailed in the complaint.222 The governinginstrument may impose additional standards and restrictions in order tobring a derivative action, provided such standards and restrictions are notmanifestly unreasonable.223
Article 7 - Conversion and Merger
USTA Article 7 addresses mergers and conversions involving astatutory trust, the conversion of another form of business organization toa statutory trust, mergers between statutory trusts and mergers betweenstatutory trusts and another form of business organization.
An organization other than a statutory trust may convert into astatutory trust provided the conversion is not prohibited by the lawgoverning the other form of business organization and that organic law iscomplied with in effecting the conversion.224 The other business entitymust adopt a plan of conversion satisfying both its organic law and therequirements of USTA.225 Given that “organization” is defined to include
220 USTA § 609(c). Accord RULLCA § 903, 6B U.L.A. 523 (2008); ULCAA §1302(a)(1), 6A U.L.A. 296 (2008); ULPA § 1003, 6A U.L.A. 501 (2008).221 USTA § 609(b). Accord RULLCA § 902, 6B U.L.A. 523 (2008); ULCAA §1301, 6A U.L.A. 295 (2008); ULPA § 1002, 6A U.L.A. 500 (2008).222 USTA § 609(d). Accord RULLCA § 904, 6B U.L.A. 524 (2008); ULCAA §1303, 6A U.L.A. 297 (2008); ULPA § 1004, 6A U.L.A. 501 (2008). There is norequirement that the complaint filed in the derivative action be verified, and there nostatutory provision for a special litigation committee. Contrast RULLCA § 905, 6BU.L.A. 524 (2008).223 USTA § 103(f)(12).224 USTA § 702(a).225 USTA § 702(b).
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a common law trust that lacks a predominantly donative purpose,226
certain common law trusts will be able to convert into a statutory trust.
A statutory trust may convert into another form of organizationpursuant to USTA section 703, which transaction requires, absent privateordering to the contrary in the governing instrument, unanimous approvalby the trustees and the beneficial owners.227
If the conversion is of a business entity into a statutory trust, acertificate of trust reciting, in addition to the otherwise applicablerequirements of USTA,228 the history of the conversion must be delieveredto the Secretary of State.229 Alternatively, where the conversion is from astatutory trust into another form of business organization, a statement ofconversion must be filed with the Secretary of State.230 In most situations,the organic law governing the form of organization into which thestatutory trust is converted will impose additional requirements. Forexample, upon the conversion of a statutory trust into a limitedpartnership, the filing of a certificate of limited partnership will berequired.231 Upon a conversion, the surviving entity is treated for allpurposes as the same organization that existed before the conversion, andit seamlessly takes on all assets and liabilities of the predecessororganization.232
A statutory trust may engage in a merger with another statutorytrust or another form of business organization, provided the merger is notprohibited by the law governing the other form of business organizationand each business organization complies with its organic law in
226 USTA § 701(7). See also USTA § 303(b).227 USTA § 703(a).228 See USTA § 201.229 See USTA § 704(a)(2).230 See USTA § 704(a)(1).231 See ULPA § 1104(a)(2), 6A U.L.A. 504 (2008). See also RULLCA §1008(a)(2), 6B U.L.A. 534 (2008).232 USTA § 705.
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connection with the merger.233 The constituents to the merger must adopta plan of merger in record form satisfying the requirements of USTA andany other applicable law.234 Absent private ordering to the contrary, aplan of merger must be approved by all trustees and all beneficial holdersof the statutory trust.235 After approval of the merger, articles of mergermust be filed with the Secretary of State.236 Upon the effective time anddate of the merger,237 the business organizations other than the businessorganization surviving the merger cease to exist, and the businessorganization surviving the merger is vested with all of the assets andproperties of the other business organization, and is also responsible for alldebts, obligations and liabilities of the other organizations.238
USTA article 7 is not exclusive, and conversions and mergers maybe accomplished by any other means provided by law.239
Article 8 - Dissolution and Winding Up
A statutory trust may be dissolved by administrative dissolution orvoluntarily either upon the events or circumstances set forth in thegoverning instrument or with the approval of all beneficial owners.240
There exists no obligation that the governing instrument defines an eventor circumstance causing dissolution.241 The governing instrument mayprovide for the approval of dissolution by less than all of the beneficial
233 USTA § 706(a).234 USTA § 706(b); USTA § 706(a)(2).235 USTA § 707(a).236 USTA § 708.237 See USTA § 708(d).238 USTA § 709(a). This statement is correct as to the organizational law, but isqualified by other law. See, e.g., Cincom Sys., Inc. v. Novelis Corp., 2009 U.S. App.LEXIS 21172 (6th Cir. 2009) (notwithstanding that under state law a statutory mergerdoes not constitute a transfer, successor by merger did not succeed to copyright licenseheld by a participant in the merger).239 USTA § 710.240 USTA § 801.241 See also USTA § 306.
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owners. Other than upon an administrative dissolution, the statutory trustfiles articles of dissolution with the Secretary of State, whereupon the trustis dissolved.242
USTA does not provide a mechanism for judicial dissolution of astatutory trust;243 individual state drafting committees may want toconsider the addition of a provision for judicial dissolution in theiradoptions of USTA.
After dissolution, the statutory trust must proceed to wind up itsactivities, and the trust continues to exist for only that limited purpose.244
During winding up, the statutory trust is to discharge its debts andobligations, marshal its properties, and distribute those properties notrequired for the satisfaction of debts and obligations among the beneficialinterest holders.245 The winding up of a statutory trust may extend for a“reasonable time,” a normative period that will be of such brevity orduration as is necessary and appropriate for the statutory trust in question.The immediate fire sale of the assets is neither necessary norappropriate.246 Any person, a group that could include a trustee, beneficialowner or a creditor of the statutory trust, may on good cause shownpetition the appropriate court to appoint a receiver for the dissolvedstatutory trust to oversee its winding up.247
As part of the winding up, notice may be given by the statutorytrust to known and unknown claimants against its assets. Known
242 USTA § 802.243 Contrast RULLCA §§ 701(a)(4), (5), 6B U.L.A. 506 (2008); ULPA § 802, 6AU.L.A. 468 (2008); RUPA § 801(5), 6 U.L.A. 189 (2001); ULCAA § 1203, 6A U.L.A.281 (2008); MODEL BUS. CORP. ACT § 14.30.244 USTA § 803(a). The terminology employed in USTA differs from that utilizedin numerous other acts and is less express than might be desired. A state draftingcommittee may want to consider combining USTA section 803(a) and the lead-in clauseof USTA section 803(b) to provide “A dissolved statutory trust shall continue itsexistence as a statutory trust but shall not carry on any business except that appropriate towind up and liquidate its business and affairs.”245 USTA § 803(b).246 See USTA § 803(c)(1).247 USTA § 803(f).
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claimants must receive a record notice of the necessity of andrequirements for submitting a claim. The deadline for submitting a claimmay not be less than 120 days after transmission of that notice to theclaimant.248 To the extent a claimant whose claim is rejected by thestatutory trust does not file suit to enforce their claim within 90 days afterthe rejection, the claim will be barred.249 There should be no bar againstclaims that, as of the effective date of the statutory trust’s dissolution,were unmatured, or contingent with respect to claims based upon eventsoccurring after the event of dissolution.250 With respect to unknownclaimants, notice of the dissolution may be published in a newspaper ofgeneral circulation with instructions for the submission of claims.251
Subsequent to publication of notice, claims will be barred against thestatutory trust, its remaining undistributed assets and those assets that, inliquidation, have been distribution to the beneficial interest owners, after athree year period has elapsed.252
A statutory trust is subject to administrative dissolution if it iswithout an agent for service of process for 30 days, its annual report is notfiled within 60 days after the due date, or if any fee, tax or penalty due tobe paid to the Secretary of State is not paid within 60 days of its due
248 USTA § 804(a). Accord RULLCA §§ 703(a), (b), 6B U.L.A. 508 (2008);ULCAA §§ 1208(a), (b), 6A U.L.A. 286 (2008); ULPA §§ 806(a), (b), 6A U.L.A. 473(2008).249 USTA § 804(b). Accord RULLCA § 703(c), 6B U.L.A. 509 (2008); ULCAA §1208(c), 6A U.L.A. 286 (2008); ULPA § 806(c), 6A U.L.A. 473 (2008).250 USTA § 804(c). Accord RULLCA § 703(d), 6B U.L.A. 509 (2008); ULCAA §1208(c), 6A U.L.A. 286 (2008); ULPA § 806(d), 6A U.L.A. 473 (2008).251 USTA §§ 805(a), (b). Accord RULLCA § 704, 6B U.L.A. 509 (2008); ULCAA§ 1209, 6A U.L.A. 287 (2008); ULPA § 807, 6A U.L.A. 476 (2008).252 USTA§§ 805(c), (d) and (e). USTA provides, in brackets, for a period of reposeof three years after the publication of the notice of dissolution, but this period is subjectto modification in an individual state adoption. Presumably, this period of repose shouldbe the same across all business entities as there is no policy basis for drawing distinctionsas to the rights of creditors based upon the form of organization of the debtor. Inaddition, state drafting committees may want to focus upon USTA section 805(c)(3)which refers to “contingent” but not to “unmatured;” both “contingent” and “unmatured”appear in USTA section 804(c)(2), and there does not appear to be a policy basis for theinclusion of “unmatured” in one provision and not in the other.
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date.253 Upon determining that a basis for administrative dissolutionexists, the Secretary of State is charged to notify the statutory trust,through its agent for service of process or at its designated office,affording the statutory trust a 60-day opportunity to cure the problem thattriggered the dissolution.254 Absent cure, the Secretary of State willproceed to dissolve the statutory trust and will provide notice of that actionthrough the agent for service of process or the designated office.255 Thelawful purpose of the statutory trust is then limited to activities appropriateto its winding up.256 In all likelihood, state drafting committees will wantto conform the provisions relating to administrative dissolution with thosealready in effect in the state’s other business entity statutes.
Having undergone administrative dissolution, a statutory trust mayapply for reinstatement.257 If the Secretary of State determines thatreinstatement is appropriate, a declaration of reinstatement shall be filed,and the reinstatement, upon its effectiveness, shall relate back to and takeeffect as of the effective date of the initial administrative dissolution.258 Astatutory trust denied reinstatement may appeal that determination.259
Article 9 - Foreign Statutory Trusts
A statutory trust doing business in a foreign jurisdiction willcontinue to have the law of its jurisdiction of formation applied to its“internal affairs,” the determination of the liability of a beneficial owner ortrustee for any debt, obligation or liability of the trust or of a seriesthereof, and the enforceability of a debt, obligation or liability of thestatutory trust or series thereof against the property of either the trust or a
253 USTA § 806(a).254 USTA § 806(b).255 USTA § 806(c).256 USTA § 803(a).257 USTA § 807(a).258 USTA §§ 807(b), (c). See also Thomas E. Rutledge, The 2007 Amendments tothe Kentucky Business Entity Statutes, 97 KY. L.J. 229, 239-43 (2008-09) (discussingissues incident to the preservation (or not) of limited liability for those in operationalcontrol of an administratively dissolved business entity).259 USTA § 808.
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series.260 What exactly is contemplated by “internal affairs” is notspecified either in USTA or in its official comments; presumably thereference is to “internal affairs” as contemplated by the Restatement(Second) of Conflicts.261 USTA section 901(a)(2)262 provides that thepersonal liability of the beneficial owners and trustees for the debts andobligations of the statutory trust or a series thereof will be determinedpursuant to the law of the jurisdiction of formation,263 adopting, inter alia,the rule of sections 307 and 309 of the Restatement (Second) ofConflicts.264 Having expressly adopted these rules, it will not benecessary to assess whether a particular foreign statutory trust, havingtransacted business in a particular jurisdiction, would fall within the ambit
260 USTA § 901(a). Being referenced in section 103(f)(15), USTA section 901 isnot subject to modification by private ordering.261 See RESTATEMENT (SECOND) OF CONFLICTS OF LAWS § 302, cmt a.262 Section 901(a)(2) refers to “debts, obligations or other liabilities” of the trust ora series thereof, while the parallel provision of USTA section 301(2) refers to a “debt,obligation, or other liability.” There exists no substantive or even stylistic basis for thisdistinction, and state drafting committees likely will want to modify section 901(a)(2) tobe both singular and in conformity with section 301(2).263 Accord RULLCA § 801(a)(2), 8B U.L.A. 515 (2009) (the law of the jurisdictionof formation will determine “the liability of a member as member and a manager asmanager for the debts, obligations or other liabilities of the company.”); KY. REV. STAT.ANN. § 386.4420(1)(a) (the law of the jurisdiction under which a foreign business trust isorganized shall govern “the liability of its trustees and beneficial owners for the debts andobligations of the business trust.”); VA. CODE § 13.1-1241(1) (“The laws of the state orother jurisdiction under which a foreign business trust is formed govern its formation andinternal affairs and the liability of its beneficial owners and trustees.”).264 RESTATEMENT (SECOND) OF CONFLICTS OF LAWS § 307 (“The local law of thestate of incorporation will be applied to determine the existence and extent of ashareholder’s liability to the corporation for assessments or contributions and to itscreditors for corporate debts”); id. § 309 (“The local law of the state of incorporation willbe applied to determine the existence and extent of a director’s or officer’s liability to thecorporation, its creditors and shareholders, except where, with respect to the particularissue, some other state has a more significant relationship under the principle stated in § 6to the parties and the transaction, in which event the local law of the other state will beapplied.”). See also comment c to RESTATEMENT § 297 (“Insofar as this protection isaccorded them in the state of incorporation, a state will usually recognize the liability ofthe shareholders of a foreign corporation from being sued as individuals on mattersarising out of the acts or omissions of the corporation and from having their individualproperty made responsible for obligations of the corporation.”).
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of a “corporation” for purposes of sections 307 and 309 of theRestatement.265 USTA section 901(a)(3) provides an express rule that,with respect to a foreign business trust, it is the law of the jurisdiction offormation that will determine what assets, including assets that have beenassociated with a series, will or will not be available to satisfy the debtsand obligations of either the statutory trust as a whole or of a seriesthereof. This is a crucial provision and is distinct from section 901(a)(2)of the Act. The question of which assets of a statutory trust will beavailable to satisfy particular obligations is a different from the question ofwhether the participants in the statutory trust are liable for its debts andobligations.266
USTA section 901 goes on to provide that a foreign statutory trustmay not be denied a certificate of authority on the basis that the law underwhich it is organized differs from the law of the jurisdiction in which thecertificate of registration is sought.267 While the placement of thisprovision is equivalent to that set forth in a number of other uniformacts,268 state drafting committees may want to consider whether thisplacement is appropriate.269 The applicable governing law is notcontingent upon whether or not the state has granted a certificate of
265 See RESTATEMENT (SECOND) OF CONFLICTS OF LAWS § 298 (2006). See alsoThomas E. Rutledge, To Boldly Go Where You Have Not Been Told You May Go: LLCs,LLPs, and LLLPs in Interstate Transactions, 58 BAYLOR L. REV. 205 (Winter 2006).266 As noted with respect to the Revised Uniform Limited Liability Company Act,there addressing the equivalent of USTA section 901(a)(2), it was observed that:
This provision does not pertain to the “internal shields” of a foreign“series” LLC because those shields do not concern the liability ofmembers or managers for the obligations of the LLC. Instead, thoseshields seek to protect specified assets of the LLC (associated withone series) from being available to satisfy specified obligations of theLLC (associated with another series).
RULLCA § 801, comment to section (a)(2), 6B U.L.A. 515 (2008). See also Rutledge,Again, For the Want of a Theory, supra note [123] at 329-30.267 USTA § 901(b). Accord RULLCA § 801(b), 6B U.L.A. 515 (2008); KY. REV.STAT. ANN. § 275.380(1)(b); id. § 386.4420(1)(b); VA. CODE § 13.1-1241(2).268 See, e.g., RULLCA § 801(b), 6B U.L.A. § 15 (2008).269 “A foolish consistency is the hobgoblin of little minds.” Ralph Waldo Emerson,SELF-RELIANCE, ESSAYS: First Series (1841).
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registration to a particular trust. USTA section 901(b) may be moreappropriately placed as a new subsection (c) of USTA section 902 that setsforth the substantive requirements to apply for a certificate of registration.
USTA section 901(c) provides that a foreign statutory trust holdinga certificate of registration is not authorized to “engage in any business orexercise any power that a statutory trust may not engage in or exercise inthis state.”270 While the statement is good as far as it goes, USTA section901(c) is arguably deficient both as to its placement in the Act and theincompleteness as to the effect, or not, of a statement of registration.Furthermore, the terminology employed is somewhat ambiguous. A statedrafting committee may want to consider a more comprehensivefreestanding provision as to the effect of a certificate of registration:
reciting that a foreign statutory trust holding acertificate of registration is authorized to, during theterm thereof, transact business in thatjurisdiction;271 and
expanding USTA section 901(c) to clarify that aforeign statutory trust with a certificate of authorityhas the same, not greater, rights and privileges andis subject to the same duties, restrictions, penaltiesand liabilities that are imposed upon a domesticstatutory trust.272
USTA section 902 is primarily focused upon reciting thesubstantive requirements for an application for a certificate of registrationsought by a foreign statutory trust. The application must set forth:
270 USTA § 901(c).271 See, e.g., MODEL BUS. CORP. ACT § 15.05(a), KY. REV. STAT. ANN.§ 275.405(1); id. § 386.4430(a).272 MODEL BUS. CORP. ACT § 15.05(b), KY. REV. STAT. ANN. § 275.405(2); id.§ 386.4430(2).
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the name of the statutory trust;273
the name of the jurisdiction under which it isformed;
the street and mailing address of the principal officeof the statutory trust, and, if the laws under whichthe statutory trust was formed require that itmaintain an office in its jurisdiction of organization,the street and mailing address of that requiredoffice;274 and
the registered office and registered agent of thestatutory trust and the jurisdiction for which thecertificate of registration is sought.275
In addition, the statutory trust must deliver a certificate of good standingor similar record from the Secretary of State of the jurisdiction in whichthe trust is formed.276 Individual states may want to consider arequirement that the application for a certificate of registration recite the
273 A foreign statutory trust whose name does not satisfy the requirements for adomestic statutory trust as set forth in USTA section 207 may adopt an alterative namefor use in that jurisdiction and may thereunder transact business. USTA § 906. This isanother area in which individual state drafting committees will want to conform thepractice applied to foreign statutory trusts to be hopefully otherwise consistent with therules applicable to foreign limited partnerships, corporations and LLCs.274 The reference to an office required to be maintained in the jurisdiction oforganization is somewhat ambiguous. In almost every instance, a statutory trust will berequired to maintain in its jurisdiction of organization a registered office and agent. See,e.g., KY. REV. STAT. ANN. § 386.384; IND. CODE § 23-5-1-4(a)(4); VA. CODE § 13.1-1220. It is not clear whether this “office” is sufficient to constitute the office that must,pursuant to USTA section 902(a)(3), be identified. Conversely, the reference could be toa principal place of business or similar office required in the jurisdiction of organization.Some confusion may be avoided if state drafting committees consider including arequirement that any registered office and agent information required by the jurisdictionof organization be included, thereby avoiding the ambiguity as to what constitutes arequired office.275 USTA §§ 902(a)(1) - (4).276 USTA § 902(b).
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names and the business address of each of the trustees.277 In addition,states may want to consider that, with respect to statutory trusts formed inmany jurisdictions, there is no requirement to file with the Secretary ofState and, as a consequence thereof, it is not possible for there to be issueda “certificate of good standing or a record of similar import signed by theSecretary of State” from the jurisdiction of formation.278 Documentationas to the existence of a foreign statutory trust is of somewhat questionableneed; the authors are unaware of any groundswell of efforts, held backonly by such requirements, to qualify nonexistent foreign entities in thevarious jurisdictions. Further, were a nonexistent foreign statutory trustqualify to transact business, the law of that purported foreign jurisdiction,and not the law of the jurisdiction in which the registration is sought,279
would govern the liability of the purposed beneficial owners and trusteesand, in consequence, they would have no claim for limited liability.
USTA does not contain a provision mandating that the applicationfor a certificate registration be amended/updated when the information setforth therein becomes out of date;280 state drafting committees consideringthe adoption of USTA may want to add such a provision.
Another matter that state drafting committees may want toconsider is the crucial distinction between a mandatory “shall” and
277 Accord KY. REV. STAT. ANN. § 386.4426(1)(f). USTA section 201 does notrequire that the certificate of trust recite the names and addresses of the trustees.278 For example, no filing with the Secretary of State is required for the formationof a business trust in Massachusetts. Certainly it would not be the intent, in a jurisdictionadopting the Act, to preclude the issuance of a certificate of registration to a foreignstatutory trust organized in a jurisdiction in which no certificate may be had from theSecretary of State. This issue could be addressed with the addition of an “if any” inUSTA section 902(b), or requiring in those situations or representation from the personwho has executed and delivered for filing the application for a certificate of registrationan affirmative statement that the foreign statutory trust validly exists under the laws of itsjurisdiction of organization. See, e.g., KY. REV. STAT. ANN. §§ 275.395(1)(g),386.4426(1)(g).279 See USTA § 901(1)(2).280 Contrast MODEL BUS. CORP. ACT § 15.04(a); DEL. CODE ANN. tit. 12, § 3855;KY. REV. STAT. ANN. § 275.400; KY. REV. STAT. ANN. § 386.4428; VA. CODE § 13.1-1245. This lacuna is especially curious in that USTA section 906(b) makes reference toan amended certificate of registration.
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permissive “may.” USTA section 902(a) provides that in order to registerto do business, a foreign statutory trust “may” apply for a certificate ofregistration. The use of the permissive “may” indicates that there is analternative mechanism for registering to transact business or thatqualification is optional; in fact neither suggestion is correct. Further,USTA does not mandate that a foreign statutory trust transacting businessapply for a certificate of registration, setting forth, rather, only certainconsequences that follow the failure to do so.281 State drafting committeesmay want to make the requirement to apply for a certificate of registrationmandatory and also impose a temporal requirement, so that USTA section902(a) read:
Before transacting business in this state, a foreign statutorytrust shall apply for a certificate of registration bydelivering an application to the [Secretary of State].282
USTA incorporates a non-exclusive list of activities that, ofthemselves, do not constitute doing business by a statutory trust.283 It isexpressly provided that a person is not doing business in a state solely byreason of being a trustee or a beneficial owner of a foreign statutory trustthat is transacting business.284
Once all requirements for filing of the certificate of registrationhave been satisfied, it is to be filed by the Secretary of State with a copyreturned to the foreign statutory trust.285 Thereafter, assuming it has not
281 See infra notes [292] through [295] and accompanying text discussing USTA§ 909.282 Accord KY. REV. STAT. ANN. § 275.385(1). See also KY. REV. STAT. ANN.§ 386.4422(1) (“A foreign business trust shall not transact in this Commonwealth until itobtains a certificate of authority from the Secretary of State.”).283 USTA § 903. While section 903 of the Uniform Limited Partnership Act iscited as the primary source for this provision, it is similar in content as well to RULLCAsection 803 and Model Business Corporation Act section 15.01(b). Likely individualstate drafting committees will want to modify this listing to the hopefully consistent liststhat are otherwise maintained in that state’s business entity acts.284 USTA § 903(c). Contrast FLA. STAT. § 620.169(6) (requiring that each generalpartner of a foreign limited partnership qualified to transact business in Florida bethemselves qualified to transact business).285 USTA § 904.
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been revoked and no notice of cancellation has been filed with respect tothe foreign statutory trust, a certified copy of the certificate of registrationmay be delivered to anyone requesting it, and that certificate may be reliedupon as “conclusive evidence” that the foreign statutory trust is authorizedto transact business in that jurisdiction.286
Once effective, a certificate of registration is subject to eitherrevocation by the Secretary of State or voluntary cancellation by theforeign statutory trust. A certificate of registration may be revoked by theSecretary of State if the statutory trust does not maintain an agent forservice of process, does not file a timely update of change in its registeredoffice or registered agent, does not file its annual report, or does not payany fees, taxes or penalties due to the Secretary of State.287 The Secretaryof State will give notice to the foreign statutory trust of its intent to revokeand afford it the opportunity to cure the basis for the revocation. In theabsence of cure, the authority of the foreign statutory trust to transactbusiness in that jurisdiction will terminate as of the date set forth in theSecretary of State’s notice of intent to revoke.288 If, in the alternative, thebasis for revocation is cured within the appropriate period, it shall bereinstated.289 Voluntary cancellation of a certificate of registration by a
286 USTA § 905. Accord MODEL BUS. CORP. ACT § 1.27.287 USTA § 907(a). State drafting committees will likely want to revise theirindividual adoptions of USTA section 907(a). With respect to subsection (2) thereof, asthe identification of the registered office and agent for service of process of a statutorytrust are a matter of positive law, they being the person and office identified to theSecretary of State, it is difficult to see how there can be a change in either absent a filingwith the Secretary of State. Therefore, it is questionable how there can be a “statement ofchange” filed up to sixty (60) days after a change has occurred. Rather, it would seemthat no change has occurred until the statement of change is delivered for filing. Insubsection (3) the reference to “file an annual report” is inaccurate in that the statutorytrust does not file the report, that action is accomplished by the Secretary of State.Rather, the statutory trust delivers for filing its annual report. See also USTA § 213(a)(providing that a statutory trust shall deliver for filing its annual report). Further,although “annual” is not bracketed in USTA section 907(a)(3), in those states that file areport on a bi-annual or other than annual basis, the terminology would need to beconformed.288 USTA §§ 907(b), (c).289 USTA § 907(d). This is another area which state drafting committees will wantto carefully scrutinize and likely redraft the uniform language. Under USTA section907(b), notice of the intent to revoke the certificate of registration is given, the effective
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foreign statutory trust requires the filing with the secretary of state of anotice of cancellation.290 The certificate of registration is cancelled uponthe effectiveness of the notice of cancellation, which is determined inaccordance with USTA section 204.291
A foreign statutory trust transacting business in a particularjurisdiction without applying for and receiving a certificate of registrationis precluded from maintaining an action or proceeding in that state until ithas received that certificate of registration.292 Still, the failure to qualifydoes not impair the validity of contracts or acts of the statutory trust orpreclude it from defending an action or proceeding initiated against it inthat jurisdiction,293 nor does the failure subject either a trustee or abeneficial owner to liability for the debts, obligations or liability of thetrust solely because the trust transacted business without a certificate ofregistration.294 A foreign statutory trust transacting business withoutobtaining a certificate of registration, or a foreign statutory trust that has
date of the revocation being at least sixty days after the notice is sent. It is during thatsixty day period that the statutory trust may cure the reason for the revocation. If in thatsixty day period a cure is accomplished, the notice of intent to revoke becomes a nullity,and there will have never taken place a revocation. As such, it is inappropriate whenUSTA section 907(d) indicates that upon cure the statutory trust is “reinstated” and thatthe reinstatement relates back to the date of transmission of notice of revocation. USTAdoes not contain a provision addressing the ability of the foreign statutory trust to appealthe revocation of its certificate of registration. Contrast MODEL BUS. CORP. ACT. §15.32; KY. REV. STAT. ANN. § 386.4448.290 USTA § 908(a). The notice of cancellation must set forth the name of theforeign statutory trust, the date of filing of its initial certificate of registration, that thecertificate of registration is being cancelled, and any other information the trustee maydetermine to set forth therein.291 USTA § 908(b). See also supra notes [57] through [58] and accompanying text.292 USTA § 909(a). Accord MODEL BUS. CORP. ACT § 15.02(a); RULLCA §808(a), 6A U.L.A. 520 (2008); ULPA (2001) § 907(b), 6A U.L.A. 497 (2008); KY. REV.STAT. ANN. § 386.4424(1); VA. CODE § 13.1-1247(A).293 USTA § 909(b). Accord MODEL BUS. CORP. ACT § 15.02(e); RULLCA §808(b), U.L.A. 520 (2008); ULPA (2001) § 907(c), 6A U.L.A. 497 (2008); ULCAA §1407(c), 6A U.L.A. 304 (2008); KY. REV. STAT. ANN. § 386.4424(5); VA. CODE § 13.1-1247(B).294 USTA § 909(c). Accord RULLCA § 808(c), U.L.A. 520 (2008); ULPA (2001)§ 907(d), 6A U.L.A. 497 (2008); ULCAA § 1407(d), 6A U.L.A. 304 (2008).
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cancelled its certificate of registration, is subject to service in accordancewith USTA section 212.295 The Attorney General is empowered to initiatean action against a foreign statutory trust that is transacting businesswithout having registered to do so.296 None of the provisions of Article 9of USTA are subject to modification by private ordering.297
USTA does not contain a provision imposing liability upon thetrustees or others who authorize or permit a statutory trust to transactbusiness in the jurisdiction without registering to do so.298
Article 10 - Miscellaneous Provisions
Because USTA is a uniform act, it is directed that in its applicationand construction consideration be given to the object of uniformity acrossthe various states.299 The directive as to uniform construction is notsubject to override by private ordering.300 The relationship of the act tothe Electronic Signatures in Global and National Commerce Act isexplained.301 With respect to transition, the adoption of USTA does not
295 USTA § 909(d). This provision would indicate, although such is not set forth inthe statute, that an USTA § 908 cancellation of a certificate of registration terminates theauthority of the previously appointed registered office and agent. If that is a desiredconsequence, state drafting committees may desire to make such express in USTA § 908.Thereafter, for purposes of consistency, USTA § 907 should likewise be supplemented.296 USTA § 910. Accord RULLCA § 809, 6B U.L.A. 521 (2008); ULPA (2001) §908, 6A U.L.A. 499 (2008); VA. CODE § 13.1-1248.297 See USTA § 103(f)(15).298 Contrast VA. CODE § 13.1-1247(D) (imposing upon each trustee, officer andemployee a personal fine between $500 and $5,000 when they have knowledge that theforeign statutory trust is transacting business without having met the requirement to havequalified to do so).299 USTA § 1001. Accord RUPA § 1201, 6 U.L.A. 265 (2001); ULPA 2001 §1201, 6A U.L.A. 525 (2008); RULLCA § 1101, 6B U.L.A. 541 (2008); ULCAA § 1701,6A U.L.A. 321 (2008).300 USTA § 103(f)(16).301 USTA § 1002. Accord ULPA § 1203, 6A U.L.A. 525 (2008); RULLCA § 1102,6B U.L.A. 541 (2008); ULCAA § 1702, 6A U.L.A. 321 (2008).
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impact upon actions that are either pending or that have accrued.302 ADartmouth College provision is included in the Act.303
USTA section 1005 contains the transition provision providing: (a)that from the effective date of the state adoption of USTA, it willthereafter govern the formation of all newly created statutory trusts; (b)that over a transition period, a statutory trust whose existence predates theeffective date of the state adoption of USTA may elect to be governed bythe new act;304 and (c) from on and after the end of the transition period,all statutory trusts formed prior to the initial effective date of USTA willbe governed by the new law.305 In considering the transition to USTA,states will need to carefully consider their existing laws and determinewhether a mandatory drag-in of business trusts formed either at commonlaw and/or under statutes that do not themselves contain a DartmouthCollege provision is permissible without impacting the rights of theparticipants therein as protected by the Contract Clause of theConstitution.306 Further, even if subjecting preexisting business trusts toUSTA is permissible, there is the question as to whether it is appropriate –
302 USTA § 1003. Accord RUPA § 1207, 6 U.L.A. 272 (2001); ULPA § 1207, 6AU.L.A. 32 (2008); RULLCA § 1103, 6B U.L.A. 541 (2008); ULCAA § 1702, 6A U.L.A.321 (2008).303 USTA § 1004. USTA § 1004 is based upon the Dartmouth College provision ofthe Model Business Corporation Act. See MODEL BUS. CORP. ACT § 1.02. TheDartmouth College reservation is not subject to contrary private ordering. See USTA §103(f)(16).304 USTA provides for a 2-year transition period. USTA § 1005. Looking at thevarious state adoptions of RUPA, those transition periods have ranged from three (ALA.CODE § 10-8A-1106) or four and a half years (CONN. GEN. STAT. ANN. § 34-398) to notransition whatsoever. See, e.g., COLO. REV. STAT. § 7-64-1204; HAW. REV. STAT. §425-143; WYO. STAT. ANN. § 17-21-1003. A uniform act may be adopted so as to beeffective as of a particular date but binding upon organizations predating that date only ifthey so elect. See, e.g., KY. REV. STAT. ANN. §§ 362.1-1204; 362.2-1205.305 USTA § 1005. Accord RUPA § 1206, 6 U.L.A. 266 (2001); ULPA § 1206, 6AU.L.A. 526 (2008); RULLCA § 1104, 6B U.L.A. 541 (2008); ULLCA § 1205, 6B U.L.A.651 (2008).306 U.S. CONST., ART. 1, § 10, cl. l. (“No State shall … pass any … Law impairingthe Obligation of Contracts. . . .”) This issue assumes that the trust agreements of thebusiness trusts organized prior to a state adoption of USTA are contracts. ContrastFrankel, Failure, supra note [17] at 19-20.
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just because you can do something does not mean you should do it. Oftendrafted in an age before the current focus upon freedom of contract andembodying the law of common law (largely donative) trusts, in certaincircumstances the application of USTA to those business trusts may alterthe agreement of the participants in that venture in what will no doubt besurprising ways.307 If that is a concern, state drafting committees maywant to forego a mandatory drag-in date.308
Conclusion
USTA is a useful addition to the menagerie of modern uniformunincorporated business organization acts.309 Assuming widespreadadoption, it will bring a degree of order to the current mix of state statutesand principles of common law that currently govern statutory trusts. TheAct also provides a mechanism by which a state may have a statutory trustthat may be used outside of its traditional applications of the investmentcompany and structured finance. Still, the uniform language of USTAneeds to be carefully examined by state drafting committees, policydecisions embodied in the uniform act should be reconsidered and, asappropriate, alternative determinations should be made by appropriatechanges in the language. Further, all the provisions dealing with Secretaryof State interface should be reconsidered and modified to achieveindividual state consistency. With these considerations in mind, a state
307 See, e.g., Allan W. Vestal, Should the Revised Uniform Partnership Act of 1994Really be Retroactive?, 50 BUS. LAW. 267 (1994); Thomas E. Rutledge and Phuc H. Lu,No Good Deed Goes Unpunished: Pitfalls for Counsel to a Partnership About to beGoverned by a New Law, 45 BRANDEIS LAW JOURNAL 755 (2007).308 Such a model of leaving preexisting business organization laws in place whileadopting uniform acts effective from a particular date and into which preexistingorganizations may, on an individual basis, elect to be subject has been followed in, forexample, the adoptions of RUPA and ULPA in Kentucky and Nevada. See Thomas E.Rutledge and Dean Allan W. Vestal, Modern Partnership Law Comes to Kentucky:Comparing the Kentucky Revised Uniform Partnership Act and the Uniform Act FromWhich it was Derived, 95 KENTUCKY LAW JOURNAL 715, 717-18 (2007); The UniformLimited Partnership Act (2001) Comes to Kentucky: An Owner’s Manual, 34 NORTHERNKENTUCKY LAW REVIEW 411, 414-16 (2007); Allan W. Vestal, “Wide Open:” Nevada’sIntra-State Market in Partnership Law, 35 HOFSTRA L.REV. 275 (2006).309 See supra note 3.
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993053.873053/587454.6
adoption of USTA will be a worthwhile addition to the state’s range ofbusiness organization statutes.
