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The Economic Structure of TrustsTowards a Property-based Approach$
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M. W. Lau

Print publication date: 2011

Print ISBN-13: 9780199602407

Published to Oxford Scholarship Online: May 2011

DOI: 10.1093/acprof:oso/9780199602407.001.0001

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The Function of Trusts in Business and Commerce

The Function of Trusts in Business and Commerce

(p.93) 5 The Function of Trusts in Business and Commerce
The Economic Structure of Trusts

M. W. Lau

Oxford University Press

This chapter examines the reasons behind the trust's popularity in business and commerce. Although the trust is neither a legal entity nor an economic firm, it is widely used in structuring transactions and investment funds. This chapter observes that the trustee's duty of care encourages prudence and conservatism. Also, the duty of impartiality, which is not a feature of corporations, ensures that different classes of investors are treated fairly. But both duties can arguably be replicated in corporations so they are not truly unique to trusts. Rather, this chapter argues that it is the trust's lack of legal personality and lack of intra-firm transfers that make it uniquely suitable for certain commercial transactions. The weak liability protection for the trustee means that it is only suitable for conducting relatively simple activities, such as holding property.

Keywords:   business and commerce, duty of care, duty of impartiality, limited liability, legal personality, intra-firm transfers, corporations

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