What is a 'Business Trust'?

A 'trust' may be described as an arrangement where a person (called the 'trustee') holds property for the benefit of others (called 'beneficiaries'). A Business Trust is a trust that operates and runs a business enterprise. It is not a separate entity in that the trustee of the business trust is regarded as the legal owner of the assets in the trust. Under the general law of trust, the beneficiaries of the trust are liable for the legal obligations of the trust.

A business trust can distribute its operating cash flows to its beneficiaries. Depending on the circumstances and how the trust is structured, tax may be payable either on profit made by the trust or by the beneficiaries on their respective shares in the profit under the trust.

Creation of Business Trusts

Business trusts are usually created under a document called a 'trust deed'. Among other things, the trust deed will:

• Define the property and the purpose of the trust, and in the case of a business trust, the business to be carried out under the trust;
• The duties of the trustee;
• The entitlements of the trust's beneficiaries.

Trusts are governed by the general law of trusts and by the provisions in the Trustees Act (Cap 337).

Registered Business Trusts

It is possible for a business trust to be registered under the Business Trusts Act (Cap 31) if the business trust fulfills certain criteria. The purpose of the Business Trusts Act is to put into place a framework to regulate business trusts that wish to raise funds from the general public.

Registered business trusts must have a trustee-manager whose role is to safeguard the interests of beneficiaries (referred to as 'unit holders' under the Business Trusts Act) of the trust and to manage the business of the trust. The trustee-manager must be a Singapore registered company, which is not an exempt private company, whose sole business is the management and operation of the trust. The duties and responsibilities of the trustee-manager are set out under the Business Trusts Act. The Trustees Act does not apply to registered business trusts.

Unit holders in registered business trusts are also given certain rights, some of which may not be available under general trust law. These include:

• Limited liability
• The right to remove and replace the trustee-manager;
• The right to fair treatment;
• The right to bring a representative or derivative action on behalf of the trust.

Although a registered business trust is not a separate entity, it is taxed as such. Unit holders are not taxed on the sums received as distributions from the registered business trust.

Termination or Winding-up of the Business Trust

Generally, business trusts may be terminated pursuant to the provisions in the trust deed. Notwithstanding the provisions of the trust deed, however, the unit holders of registered business trusts can direct the trust's trustee-manager to wind up the trust by passing a special resolution to that effect. In addition, the Business Trusts Act allows the trust to be wound up by the Court on the petition of the trustee-manager, a director of the trustee-manager, a unit holder or a creditor of the business trust.

Upon winding up, the assets in the business trust are to be applied in accordance with the trust deed.

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