UNIFORM STATUTORY TRUST ACT

Prefatory Note

Owing to uncertainty over limited liability for the beneficial owners, spotty judicial recognition, and the rise of permissive and enabling corporate codes, use of the common law trust as a form of business organization for operating enterprises declined over the course of the twentieth century. Today, most commercial enterprise that is not organized as a sole proprietorship makes use of a species of partnership (general, limited, or limited liability), the corporation, or the limited liability company. Nonetheless, as a mode of business organization the trust has continued thrive in a handful of niches, particularly in the mutual fund, structured finance, and pension industries (the Employee Retirement Income Security Act of 1974 imposes a mandatory trust paradigm on employee pension funds). See, e.g., Sheldon A. Jones, Laura M. Moret, & James M. Storey, The Massachusetts Business Trust and Registered Investment Companies, 13 Del. J. Corp. L. 421 (1988); John H. Langbein, The Secret Life of the Trust: The Trust as an Instrument of Commerce, 107 Yale L.J. 165 (1997); Steven L. Schwarcz, Commercial Trusts as Business Organizations: Unraveling the Mystery, 58 Bus. Law. 559 (2003).

Having in mind the legal uncertainty over the status of the business trust at common law, legislatures in at least twenty-nine states enacted legislation to validate the trust as a permissible form of business organization. But the entity that arises under such legislation is better understood as the “statutory business trust.” It is useful to distinguish the common law business trust from the statutory business trust for two reasons.

First, the statutory business trust differs from the common law business trust in several important respects. For example, unlike a common law business trust, which arises from private agreement, a statutory business trust requires a filing with a state registry office to come into being. In a related vein, unlike a common law business trust, which is not a juridical entity and must sue or be sued in the name of the trustee in the trustee’s capacity as such, under most business trust statutes a statutory business trust is a separate juridical entity with capacity to sue and be sued in its own name.

Second, most existing business trust statutes do not foreclose the use of the common law trust as a business entity. Instead, they offer transactional planners an additional option, the statutory business trust, which is governed by the state’s business trust act. The common law trust, by contrast, remains subject to the principles of law and equity applicable to ordinary private trusts. An analogy to the evolution of partnership law is illuminating. The relationship between the common law business trust and the statutory business trust is akin to that of the general partnership and the limited partnership.

The primary stimulus for the Commissioners’ drafting of the Uniform Statutory Trust Act is the increasing popularity of the statutory business trust, chiefly in the structured finance and mutual fund industries. Increasing use of the statutory trust as a mode of business organization has led to a recognition that the status of such trusts in many states is unclear and much of the existing legislation is out of date or incomplete. Practitioners, entrepreneurs, and scholars struggle to understand the law governing statutory trusts; simple questions concerning where to organize are often difficult to answer; and the case law on statutory trusts is surprisingly sparse. See Robert H. Sitkoff, Trust as “Uncorporation”: A Research Agenda, 2005 U. Ill. L. Rev. 31.

The Uniform Statutory Trust Act will provide the states with a functional statute for validating the statutory trust as a permissible form of business organization and to bring the disparate (and often inadequate) existing approaches into uniformity.

Models for Drafting. Although the Uniform Statutory Trust Act is the first Uniform Act on the subject of business trusts, twenty-nine states have already enacted some form of business trust legislation. In Robert H. Sitkoff, The Rise of The Statutory Business Trust [in progress], the author surveyed the existing statutes, classifying each as falling within one of four generations, and reporting data culled from filings to state registry offices on the number of active trusts under each of the existing statutes. According to this study, statutory trusts organized under the most recent fourth-generation statutes vastly outnumber all others; within the fourth-generation, the Delaware and Connecticut Statutory Trust Acts are the most popular; and as between Delaware and Connecticut, growth in the number of Delaware statutory trusts has outpaced that of Connecticut by a factor of ten to one. For a comprehensive treatment of the Delaware Act, see Wendell Fenton & Eric A. Mazie, Delaware Statutory Trusts, in The Delaware Law of Corporations & Business Organizations ch. 19 (3d ed. 2005 Supp.).

In view of the foregoing empirical findings, in drafting the substantive provisions of the Uniform Statutory Trust Act the drafting committee was heavily influenced by the Delaware and Connecticut Acts with a preference for the Delaware model. In drafting the public filing and other nonsubstantive technical provisions of the Uniform Statutory Trust Act, however, the drafting committee referred chiefly to the Uniform Limited Partnership Act (2001).

Innovative Provisions. Although much of the Uniform Statutory Trust Act reflects a reorganization to, and a tightened statement of, the Delaware Statutory Trust Act, the Uniform Act is more than a mere repackaging of the Delaware Act. Among the more significant of the Uniform Statutory Trust Act’s innovations are: (1) specification of the statutory provisions that are not subject to override in the statutory trust’s governing instrument (§103); (2) clearer guidance on the relationship of ordinary trust law to statutory business trusts (§105); (3) clearer guidance on the status of the common law business trust and its relationship the statutory trust (§806); and systematic treatment of mergers, consolidations, and dissolutions (integrated with the Model Entity Transactions Act) (Article 6). [For discussion: What other provisions, if any, should be included in this listing?]

Default Rules. Most of the Uniform Statutory Trust Act consists of default rules that apply only if the governing instrument fails to address or insufficiently covers a particular issue. Thus, pursuant to §103(a), the governing instrument may override a substantial majority of the Act’s provisions. The exceptions are scheduled in §103(b).

Existing Uniform Laws. [For discussion: The commentary that will go here depends on the results of our discussion regarding the intersection of this Act and the Uniform Trust Code. In short, where the UTC codifies the common law of trusts, this Act provides for the creation of a business entity that looks to the common law of trusts (and hence would look to the UTC) to answer questions not otherwise covered by the entity’s governing instrument and this Act. But what of the UTC’s mandatory provisions? Shouldn’t a statutory trust under this Act be exempt from those, on the theory that mandatory policies applicable to statutory trusts are covered by the mandatory rules of this Act? By contrast, other Uniform Laws dealing with trusts, such as the Uniform Prudent Investor Act and the Uniform Principal and Income Act, are default laws.]

Relationship to Common Law Trusts. [For discussion: The commentary that will go here depends on the results of our discussion of Section 806 and resolution of the intersection of this Act and the Uniform Trust Code. Still a further problem that should be discussed is the potential for a statutory trust to be used as a substitute for a donative common law trust to evade mandatory rules in ordinary trust law that were designed with donative trusts in mind.]

Relationship to Real Estate Investment Trusts and state Real Estate Investment Trust Acts. A “real estate investment trust,” also known as a REIT, is not a type of trust but rather refers to a tax status awarded to any business entity that qualifies under I.R.C. §§856 et seq., or that qualifies as a real estate mortgage investment conduit under I.R.C. §860D. See [cite to REIT law review article to be added here]. In spite of the use of the word “trust” in its title, there is no reason why a REIT must be organized as a trust, statutory or common law. Indeed, based on data culled from filings with the SEC, a recent study found that nearly all new, publicly-traded REITs formed between 1998 and 2004 were organized as Maryland corporations, not as trusts. See Robert H. Sitkoff, The Rise of the Statutory Business Trust [in progress].

Nonetheless, although infrequently used, at least 12 states have enacted some form of specialized REIT-entity legislation. Because a statutory trust created under this Act can be structured to qualify as a REIT under the federal tax laws, the drafting committee contemplated that the Uniform Statutory Trust Act would supersede such legislation (see Section 805). [For discussion: Whether this commentary should explicitly address the second-generation business trust statutes, which are really little-more than dressed up REIT statutes.]

Overview of Uniform Statutory Trust Act

The Uniform Statutory Trust Act consists of 8 articles. [For discussion: Should there be an overview of the Act here?]

Article 1—General Provisions and Definitions. [Summary to come]

Article 2—Formation; Certificate of Trust and Other Filings. [Summary to come]

Article 3—Statutory Trusts. [Summary to come]

Article 4—Trustees and Trust Management. [Summary to come]

Article 5—Beneficiaries and Beneficial Rights. [Summary to come]

Article 6—Merger, Consolidation, Conversion, and Dissolution. [Summary to come]

Article 7—Foreign Statutory trusts. [Summary to come]

Article 8—Miscellaneous Provisions. This Article primarily contains transition rules. [Further summary to come]

ARTICLE 1

GENERAL PROVISIONS AND DEFINITIONS

§101. SHORT TITLE. This [act] may be cited as the Uniform Statutory Trust Act.

Comment

Because this Act provides for the creation and use of a statutory business trust, it might seem that “Uniform Business Trust Act” or “Uniform Statutory Business Trust Act” would be a better title. However, after deliberation informed by consultation with practitioners in the structured finance and bankruptcy industries, the drafting committee rejected those and other such titles in favor of “Uniform Statutory Trust Act.” The drafting committee’s purpose in doing so was to avoid any implication that a statutory trust created under this Act would necessarily qualify as a “business trust” under the bankruptcy code. On similar reasoning the entity that arises under this act is called a “statutory trust,” see Section 102(a), not a “business trust” or “statutory business trust.” [Query: Should this comment indicate the approval of the executive committee, etc?]

Under the bankruptcy code, the definition of a “debtor” eligible for bankruptcy includes a “person,” 11 U.S.C. §101(13), the definition of “person” includes a “corporation,” id. §101(41), and the definition of “corporation” includes a “business trust.” Id. §101(41). Hence, a “business trust” might qualify as an eligible “debtor.” Bankruptcy eligibility is a significant issue for trusts used as special purpose entities in structured finance transactions, which is a principal use of the modern statutory trust in practice. Such trusts are often designed to be “bankruptcy remote,” the ultimate form of which is an entity that is not an eligible debtor under the bankruptcy code. As in the leading case of In re Secured Equipment Trust of Eastern Airlines, Inc., 38 F.3d 86 (2d Cir. 1994), in certain configurations trusts used in securitization transactions have indeed been held not to be a “business trust” under the bankruptcy code.

In eschewing the phrase “business trust” in favor of “statutory trust,” the drafters followed the lead of Delaware, which in 2002 recast the “Delaware Business Trust Act” as the “Delaware Statutory Trust Act,” replacing nearly every reference of “business trust” with “statutory trust.” See 73 Del. Laws c. 329. According to a recent study of statutory business trusts, more statutory business trusts are organized under the Delaware Act than under all other Acts combined. See Robert H. Sitkoff, The Rise of the Statutory Business Trust [in progress]. The recent fourth-generation statute in Connecticut, which was found to be second in popularity, is likewise cast a statutory trust, not business trust, act.

§102. DEFINITIONS.

(a) “Statutory trust” or “domestic statutory trust” means an unincorporated association created pursuant to this Act that:

(1) is governed by a trust instrument under which property is or will be held by one or more trustees for the benefit of one or more beneficial owners; and

(2) files a certificate of trust pursuant to Section 201.

(b) “Common law trust” means:

(1) a fiduciary relationship with respect to property,

(2) arising from a manifestation of intention to create that relationship, and

(3) subjecting the person who holds title to the property to duties to deal with it for the benefit of one or more persons, at least one of whom is not the sole trustee,

irrespective of whether the trust’s purpose is donative or commercial, including the type of trust known at common law as a “business trust” or “Massachusetts trust.” [Note: There is ambiguity about common law trusts under the Delaware Act that we should ventilate in connection with proposed Section 806. Related are two further problems: (1) correcting mismatch between a trust law default and the exigencies of business enterprise, and (2) the potential for use of statutory trusts in a donative context to evade mandatory rules in the common law of trusts designed for donative trusts (see, e.g., §303).]

(1) “Beneficial owner” means any owner of a beneficial interest in a statutory trust.

(2) “Designated office” means:

(A) with respect to a statutory trust, the office that the statutory trust is required to designate and maintain under Section 201(a)(2); and

(B) with respect to a foreign statutory trust, its principal office.

(3) “Certificate of trust” means the record that under Section 201 must be delivered to the [Secretary of State] for filing in order to create a statutory trust and that, together with the trust instrument, constitutes the governing instrument.

(4) “Electronic transmission” means any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved and reviewed by a recipient thereof and that may be directly reproduced in paper form by such a recipient through an automated process. [Query: Is this provision in conflict with the Electronic Records and Signatures provision in Section 803, and if so, how should this provision and all subsequent references to electronic transmission should be amended?]

(5) “Foreign statutory trust” means any statutory trust, business trust, association, or similar entity that is organized under the statutes of another state and that files a record with a registry office in that state. [Query: Should this definition be one level higher, meaning (c), to put it in parity with the definition of “statutory trust” in (a)? Note that this definition excludes a foreign common law trust, which would fall under the general common law trust definition above.]

(6) “Governing instrument” means the trust instrument and the certificate of trust, conflicts between which shall be resolved pursuant to Section 201(d). [Note: Per the prior meeting, we know have three terms—the certificate of trust, which is presented to the Secretary of State; the trust instrument, which is the deal document (trust instrument is defined below); and the governing instrument, which is made up of both. Query whether this should be explained in the comment.]

(7) “Other business entity” means a corporation, limited liability company, partnership, limited partnership, limited liability partnership, common law trust, cooperative or any other unincorporated business association excluding a statutory trust.

(8) “Person” means an individual, corporation, statutory trust, common law trust, estate, partnership, limited liability company, association, joint venture, government; governmental subdivision, agency, or instrumentality; public corporation, or any other legal or commercial entity; custodian, nominee or any other individual or entity in its own or any representative capacity.

(9) “Real estate investment trust” means a statutory trust qualifying as a real estate investment trust under Section 856 et seq., of the United States Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended, or a trust qualifying as a real estate mortgage investment conduit under Section 860D of the United States Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended.

(10) “Record” 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.

(11) “Related person” of a trustee, officer, employee, manager, or beneficial owner means:

(A) the spouse (or a parent or sibling thereof) of a trustee, officer, employee, manager, or beneficial owner;

(B) a child, grandchild, sibling, parent (or spouse of any thereof) of a trustee, officer, employee, manager, or beneficial owner;

(D) a trust or estate of which an individual specified in this clause (A), (B), or (C) is a substantial beneficiary; or

(E) a trust, estate, incompetent, conservatee, or minor of which the trustee, officer, employee, manager or beneficial owner is a fiduciary.

(12) “Sign” means:

(A) to execute or adopt a tangible symbol with the present intent to

authenticate a record; or

(B) to attach or logically associate an electronic symbol, sound, or

process to or with a record with the present intent to authenticate the record.

(13) “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.

(14) “Trust instrument” means any instrument (whether referred to as a trust agreement, trust instrument, declaration of trust, or otherwise) not made part of the public record that, together with the certificate of trust, constitutes the governing instrument that provides for the governance of the affairs of the statutory trust and the conduct of its business.

(15) “Trustee” means a person appointed as a trustee in accordance with the governing instrument of a statutory trust and may include a beneficial owner.

(d) Solely with respect to a statutory trust that is registered as an investment company under the Investment Company Act of 1940, as amended (15 U.S.C. § 80a-1 et seq.), or any successor statute thereto (the “1940 Act”):

(1) “Independent trustee” means any trustee who is not an “interested person” of the statutory trust; provided that the receipt of compensation for service as an independent trustee of the statutory trust and also for service as an independent trustee of one or more other investment companies managed by a single investment adviser (or an “affiliated person” of such investment adviser) shall not affect the status of a trustee as an independent trustee under this chapter. Independent trustee as defined hereunder shall be deemed to be independent and disinterested for all purposes. [Query: What is the purpose of this last sentence, and if it is necessary, is it appropriately located in a definition?]

(2) “Affiliated person” and “interested person” have the meanings set forth in the 1940 Act or any rule adopted thereunder.

Comment

Principal Sources – Delaware Statutory Trust Act §3801; Connecticut Statutory Trust Act §34-501; Uniform Limited Partnership Act §102.

Paragraph (a) defines a statutory trust as the entity created under this Act, which requires a filing with the state pursuant to Section 201. A statutory trust created under this Act is a juridical entity, in contrast with the common law trust, which is defined in paragraph (b) consistently with Restatement (Third) of Trusts §2 (2003), except that as defined herein the term “common law trust” also includes common law business trusts, a subject otherwise ignored by the Restatement. See Restatement (Third) of Trusts §1 cmt b.

Paragraph (c) contains definitions applicable to all statutory trusts. Paragraph (d) isolates definitions that are applicable only to statutory trusts that qualify as investment companies under federal law.

§103. DEFAULT AND MANDATORY RULES.

(a) Except as otherwise provided in the governing instrument, this [act] governs the duties and powers of a trustee, relations among trustees, and the rights and interests of a beneficial owner.

(b) The terms of a governing instrument prevail over any provision of this [act] except:

(1) the filing requirements for a domestic statutory trust stated in Article 2 [Query: Or all of article 2?];

(2) the filing requirements for a foreign statutory trust state in Article 7 [Query: Or all of article 7?];

(3) the obligation of a trustee to act in good faith, but the governing instrument may prescribe the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable;

(4) the regulation of names under Section 107;

(5) the law governing internal affairs under Sections 302 and 701;

(6) the rules for service of process and naming an agent for service of process in Sections 305, 306, 307, and 308.

(7) the proscription of indemnification for bad faith or reckless indifference under Section 412(a);

(8) the invalidity of an exculpation clause under Section 412(b) for the trustee’s failure to act in good faith.

Comment

Paragraph (a) emphasizes that the Uniform Statutory Trust Act is primarily a default statute. Nearly all of its provisions may be overridden by the terms of the governing instrument.

Paragraph (b) lists the items not subject to override in the governing instrument. Most concern the rights of nonparties or nonsubstantive filing and other such provisions. These provisions are mandatory because they go to the very nature of a statutory trust, distinguishing it from other forms of business organization and property ownership, and concern the rights of nonparties to the statutory trust.

[For discussion: Other possible mandatory terms such as the beneficial owners’ information rights (Section 508) and the provision that limits distributions in the case of insolvency (Section 509). Note also that part of the text of current Section 409 should probably be located here instead of in that section. Still another possibility would be terms that can only be overridden by the certificate of trust, but not a trust instrument, on the theory that the former is publicly filed. Cf. Section 304(d).]

By contrast, consistent with the freedom of contract normally associated with the common law of trusts and the existing statutory trust acts, nearly all the provisions of this Act concerning the duties and powers of a trustee, relations among trustees, and the rights and interests of a beneficiary may be overridden by the terms of the governing instrument. The main exception is that under paragraph (b)(3) the trustee’s obligation to act in good faith is mandatory (a requirement that is further implemented by paragraphs (b)(6), (7), and (8)), though good faith can be defined in the governing instrument, provided that the definition is not manifestly unreasonable. Cf. Uniform Limited Partnership Act §110(b)(7). Informed by traditional trust law principles, the drafting committee contemplated that a definition of good faith that would allow the trustee to act in bad faith, with reckless indifference, or with intentional or willful neglect would be “manifestly unreasonable.” See George G. Bogert & George T. Bogert, The Law of Trusts and Trustees §542 (rev. 2d ed. 1993).

[Note: Per the discussion at the last meeting, this section uses the “manifestly unreasonable” formulation of ULPA to state the mandatory irreducible core of the trustee’s fiduciary obligation, and this comment gives content to manifest unreasonableness by drawing on the common law of trusts. It was also requested, however, that that Delaware Limited Liability Company Act §18-1101 be presented as an alternative model. Thus (the comment continues after the excerpt):

. . . (c) To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement, the member’s or manager’s or other person’s duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement; provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing.

(d) Unless otherwise provided in a limited liability company agreement, a member or manager or other person shall not be liable to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement for breach of fiduciary duty for the member’s or manager’s or other person’s good faith reliance on the provisions of the limited liability company agreement.

(e) A limited liability company agreement may provide for the limitation or elimination of any and all liabilities for breach of contract and breach of duties (including fiduciary duties) of a member, manager or other person to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement; provided, that a limited liability company agreement may not limit or eliminate liability for any act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing.

(f) Unless the context otherwise requires, as used herein, the singular shall include the plural and the plural may refer to only the singular. The use of any gender shall be applicable to all genders. The captions contained herein are for purposes of convenience only and shall not control or affect the construction of this chapter.]

The trustee’s mandatory obligation to act in good faith, like the limitation on the scope of permissible exculpation and indemnification of the trustee under Section 412, reflects both a protective function and the need to ensure that those who transact with trustee can easily ascertain whether property in the possession of the trustee belongs to the trustee personally, is held in trust, or is held in some other representative or other limited capacity. Thus, in McNeil v. McNeil, 798 A.2d 503 (Del. 2002), the court reviewed the trustees’ actions in spite of a clause in the trust instrument that provided that the trustees’ decisions were “not subject to review by any court.” Observing that courts “flatly refuse to enforce provisions relieving a trustee of all liability,” the court explained: “A trust in which there is no legally binding obligation on a trustee is a trust in name only and more in the nature of an absolute estate or fee simple grant of property.” Id at 509. See also John H. Langbein, Mandatory Rules in the Law of Trusts, 98 Nw. U.L. Rev. 1105, 1123-1125 (2004); Robert H. Sitkoff, An Agency Costs Theory of Trust Law, 89 Cornell L. Rev. 621, 641-43 (2004).

Because paragraph (b) refers specifically to other sections of the Act, enacting jurisdictions modifying these other sections may also need to modify paragraph (b).

§104. SCOPE OF GOVERNING INSTRUMENT.

(a) Subject to Section 103, a governing instrument may contain any provision relating to the management of the business and affairs of the statutory trust, and the rights, duties and obligations of the trustees, beneficial owners, and other persons, or any other provision that is not inconsistent with this [act], other applicable law, or the information contained in the certificate of trust.

(b) Subject to Section 103, without limitation a governing instrument:

(1) May provide the means by which beneficial ownership shall be determined and evidenced, whether by means of registration, the issuance of certificates, or otherwise.

(2) May subject a beneficial owner’s right to bring a derivative action under Section 507 to additional standards and restrictions including, without limitation, the requirement that beneficial owners owning a specified beneficial interest in the statutory trust join in the bringing of the derivative action.

(3) May provide for classes, groups or series of trustees or beneficial owners, or classes, groups or series of beneficial interests, having such relative rights, powers and duties as the governing instrument may provide, and may make provision for the future creation in the manner provided in the governing instrument of additional classes, groups or series of trustees, beneficial owners or beneficial interests, having such relative rights, powers and duties as may from time to time be established, including rights, powers and duties senior or subordinate to existing classes, groups or series of trustees, beneficial owners or beneficial interests;

(4) May establish or provide for the establishment of designated series of trustees, beneficial owners or beneficial interests having separate rights, powers or duties with respect to specified property or obligations of the statutory trust or profits and losses associated with specified property or obligations, and permit the series to have a separate business purpose or investment objective;

(5) May grant to, or withhold from, all or certain trustees or beneficial owners, or a specified class, group or series of trustees or beneficial owners, the right to vote, separately or with any or all other classes, groups or series of the trustees or beneficial owners, on any matter, such voting being on a per capita, number, financial interest, class group, series or any other basis;

(6) May, if and to the extent that voting rights are granted under the governing instrument, set forth provisions relating to notice of the time, place or purpose of any meeting at which any matter is to be voted on, waiver of any such notice, action by consent without a meeting, the establishment of record dates, quorum requirements, voting in person, by proxy, by electronic transmission, by telephone, by video conference, or in any other manner, or any other matter with respect to the exercise of any such right to vote;

(7) May provide for the taking of any action, including the amendment of the governing instrument, the accomplishment of a merger, consolidation, or reorganization the appointment of one or more trustees, the sale, lease, exchange, transfer, pledge or other disposition of all or any part of the assets of the statutory trust or the assets of any series, or the dissolution of the statutory trust, or may provide for the taking of any action to create under the provisions of the governing instrument a class, group or series of beneficial interests that was not previously outstanding, in any such case without the vote or approval of any particular trustee or beneficial owner, or class, group or series of trustees or beneficial owners;

(8) May provide for the present or future creation of more than one statutory trust, including the creation of a future statutory trust to which all or any part of the assets, liabilities, profits or losses of any existing statutory trust will be transferred or exchanged, and for the conversion of beneficial interests in an existing statutory trust, or series thereof, into beneficial interests in the separate statutory trust, or series thereof;

(9) 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. Except to the extent otherwise provided in the governing instrument of a statutory trust, the trustees shall choose and supervise such officers, managers, employees and other persons [Note: Is there a less clunky way to put this?];

(10) May provide rights to any person, including a person who is not a party to the governing instrument, to the extent set forth therein;

(11) May provide for the manner in which it may be amended, including by requiring the approval of a person who is not a party to the governing instrument or the satisfaction of conditions, and to the extent the governing instrument provides for the manner in which it may be amended such governing instrument may be amended only in that manner or as otherwise permitted by law, provided that the approval of any person may be waived by such person and that any such conditions may be waived by all persons for whose benefit such conditions were intended;

(12) May provide that a person shall become a beneficial owner and shall become bound by the governing instrument if such person, or a representative authorized by such person orally, in writing or by other action such as payment for a beneficial interest, complies with the conditions for becoming a beneficial owner set forth in the governing instrument or any other writing and acquires a beneficial interest;

(13) May consist of one or more agreements, instruments or other writings and may refer to or incorporate bylaws containing provisions relating to the business of the statutory trust, the conduct of its affairs and its rights or powers or the rights or powers of its trustees, beneficial owners, agents or employees;

(14) May provide that the statutory trust or the trustees, acting for and on behalf of the statutory trust, shall be deemed to hold beneficial ownership of any income earned on securities of the statutory trust issued by any business entities formed, organized, or existing under the laws of any jurisdiction, including the laws of any foreign country;

(15) May provide for the establishment of record dates with respect to allocations and distributions by a statutory trust; and

(16) May provide that the interest of any beneficial owner who fails to make any contribution that such beneficial owner is obligated to make, or who fails to perform in accordance with, or to comply with the terms and conditions of, the governing instrument, shall be subject to specified penalties or consequences of, such failure. Such penalty or consequence may include:

(A) reducing or eliminating the defaulting beneficial owner’s proportionate interest in the statutory trust;

(B) subordinating the defaulting beneficial owner=s beneficial interest to that of nondefaulting beneficial owners;

(D) forfeiture of the defaulting beneficial owner=s beneficial interest;

(E) the lending by other beneficial owners of the amount necessary to meet the defaulting beneficial owner’s commitment; or

(F) fixing the value of the defaulting beneficial owner=s beneficial interest by appraisal or by formula and redemption or sale of the defaulting beneficial owner=s beneficial interest at such value.

Comment

Principal Sources – Scattered sections of the Delaware and Connecticut Statutory Trust Acts.

Paragraph (a) emphasizes the freedom of contract afforded to transactional planners by the Uniform Statutory Trust Act, which is primarily a default statute.

Paragraph (b) enumerates a nonexhaustive list of the sort of provisions that may validly be included in a statutory trust’s governing instrument. Although this enumeration adds little of substance to the rest of the Act, the drafting committee concluded that the demand of third parties and transactional planners to see language expressly authorizing specific terms justified inclusion of a detailed list. Cf. Uniform Trust Code §§815-16. The main exception is paragraph (b)(16), which repudiates the hostility to penalties of traditional law.

§105. APPLICABILITY OF TRUST LAW. The laws of this State pertaining to trusts supplement this [act], except to the extent modified by this [act] or another statute of this State.

Comment

Principal Sources – Delaware Statutory Trust Act §3809; Connecticut Statutory Trust Act §34-519; Uniform Trust Code §106.

Consistent with the leading fourth-generation statutory trust acts in Delaware and Connecticut (as well as the acts in Maryland, Nevada, New Hampshire, South Dakota, and Wyoming), the Uniform Statutory Trust Act provides that state trust law, not corporate law, supplements this Act and the terms of the governing instrument. Although some commentators have identified multiple instances of mismatch between traditional trust law, which evolved in the context of donative transfers, and the law of corporations and other business organizations, see, e.g., Robert H. Sitkoff, Trust as “Uncorporation”: A Research Agenda, 2005 U. Ill. L. Rev. 31, 36-37; [For discussion: (1) correcting mismatch between a trust law default and the exigencies of business enterprise; (2) the potential for use of statutory trusts in a donative context to evade mandatory rules in the common law of trusts designed for donative trusts (see, e.g., §303); and care/loyalty difference in trust law and corporate law.], other commentators have identified specific features of trust law that are desirable for in particular transactional contexts. See Steven L. Schwarcz, Commercial Trusts as Business Organizations: Unraveling the Mystery, 58 Bus. Law. 559, 557 (2003). See also Wendell Fenton & Eric A. Mazie, Delaware Statutory Trusts, in The Delaware Law of Corporations & Business Organizations §19.1 (3d ed. 2005 Supp.). In resolving in favor of trust law, the drafting committee was strongly influenced by the revealed preference of existing users of statutory trusts as evidenced by the popularity of the Delaware Act, which provides looks to trust law to fill gaps, as compared to other business trust acts (such as those in Arizona, Indiana, Kansas, Mississippi, Montana, Oregon, Tennessee, Washington, and West Virginia) that look to corporate law. See Robert H. Sitkoff, The Rise of the Statutory Trust [in progress].

§106. RULES OF CONSTRUCTION.

(a) This [act] shall 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].

Comment

Principal Sources – Delaware Statutory Trust Act §3825; Connecticut Statutory Trust Act §34-546.

This section emphasizes the freedom of contract afforded to transactional planners by the Uniform Statutory Trust Act, which is primarily a default statute, and directs courts to interpret the Act accordingly.

§107. NAME OF STATUTORY TRUST.

(a) Unless authorized by subsection (c), the name of a statutory trust must be distinguishable in the records of the [Secretary of State] from:

(1) the name of each person, other than an individual, incorporated, organized, or authorized to transact business in this State; and

(2) each name reserved under subsection 209 [or other state laws allowing the reservation or registration of business names, including fictitious name statutes].

(b) The name of each statutory trust set forth in its certificate of trust may contain the following words: “company,” “association,” “club,” “foundation,” “fund,” “institute,” “society,” “union,” “syndicate,” “limited” or “trust” (or abbreviations of like import), and may contain the name of a beneficial owner, a trustee, or any other person.

(c) A statutory trust may apply to the [Secretary of State] for authorization 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 each conflicting name:

(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 into the applicant;

(B) has been converted into the applicant; or

(d) Subject to Section 706, this section applies to any foreign statutory trust transacting business in this State, having a certificate of authority to transact business in this State, or applying for a certificate of authority.

Comment

Principal Sources – Uniform Limited Partnership Act §108, except paragraph (b), which reflects the influence of Delaware Statutory Trust Act §3814.

[Questions: (1) Should this section be located in Article 1 or 2? It was initially located in Article 1 for consistency with ULPA. (2) In prior meetings there was discussion about the potential for deception if the statutory trust’s name did not indicate that it was a limited liability entity. The question thus arose whether (a) to require such an indication, (b) to deal with deceit through a veil-piercing doctrine (see comment to section 505), (c) to prohibit deceptive names (but the question how to police such a prohibition was not answered), or (d) to leave the section as is. Note that §35(d) of the Investment Company Act of 1940 (applicable to mutual funds) says, “Deceptive or misleading names. It shall be unlawful for any registered investment company to adopt as a part of the name or title of such company, or of any securities of which it is the issuer, any word or words that the Commission finds are materially deceptive or misleading. The Commission is authorized, by rule, regulation, or order, to define such names or titles as are materially deceptive or misleading.”]

ARTICLE 2

FORMATION; CERTIFICATE OF TRUST AND OTHER FILINGS

§201. CERTIFICATE OF TRUST.

(a) In order for a statutory trust to be formed, a certificate of trust must be delivered to the [Secretary of State] for filing. The certificate must state:

(1) the name of the statutory trust, which must comply with Section 107;

(2) the street and mailing address of its current designated office;

(3) the name and street and mailing address of the initial agent for service of process under Section 305;

(b) A certificate of trust may also contain any other matters but may not vary or otherwise affect the provisions specified in Section 103(b) in a manner inconsistent with that section.

(c) Subject to Section 205(c) a statutory trust is formed when the [Secretary of State] files the certificate of statutory trust.

(d) Subject to subsection (b), if any provision of the trust instrument is inconsistent with the filed certificate of statutory trust or with a filed statement of cancellation, or change or filed articles of conversion or merger:

(3) if the current 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 its current agent 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.

(b) Subject to Section 205(c), a statement of change is effective when filed by the [Secretary of State].

Comment

Principal Source – Uniform Limited Partnership Act §115.

Paragraph (a) uses “may” rather than “shall” because a statutory trust may also change the information by an amendment to its certificate of trust under Section 202.

§307. RESIGNATION OF AGENT FOR SERVICE OF PROCESS.

(a) In order to resign as an agent for service of process of a statutory trust or foreign statutory trust, the agent must deliver to the [Secretary of State] for filing a statement of resignation containing the name of the statutory trust or foreign statutory trust.

(b) After receiving a statement of resignation, the [Secretary of State] shall file it and mail a copy to the designated office of the statutory trust or foreign statutory trust and another 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 is terminated on the 31st day after the [Secretary of State] files the statement of resignation.

Comment

Principal Source – Uniform Limited Partnership Act §116.

This section provides the exclusive means for an agent to resign without cooperation from the statutory trust or foreign statutory trust and the only way the agent, rather than the statutory trust or foreign statutory trust, can effect a change in the public record. In contrast to most records authorized or required to be delivered to the filing officer for filing under this Act, a statement of resignation may not provide for a delayed effective date. Paragraph (c) mandates the effective date, and an effective date included in a statement of resignation is disregarded.

§308. SERVICE OF PROCESS.

(a) An agent for service of process appointed by a statutory trust or foreign statutory trust is an agent of the statutory trust or foreign statutory trust for service of any process, notice, or demand required or permitted by law to be served upon the statutory trust or foreign statutory trust.

(b) If a statutory trust or foreign statutory trust does not appoint or maintain an agent for service of process in this State or the agent for service of process cannot with reasonable diligence be found at the agent=s address, the [Secretary of State] is an agent of the statutory trust or foreign statutory trust upon whom process, notice, or demand may be served.

(c) Service of any process, notice, or demand on the [Secretary of State] may be made by delivering to and leaving with the [Secretary of State] duplicate copies of the process, notice, or demand. If a process, notice, or demand is served on the [Secretary of State], the [Secretary of State] shall forward one of the copies by registered or certified mail, return receipt requested, to the statutory trust or foreign statutory trust at its designated office.

(d) Service is effected under subsection (c) at the earliest of:

(1) the date the statutory trust or foreign statutory trust receives the process, notice, or demand;

(2) the date shown on the return receipt, if signed on behalf of the statutory trust or foreign statutory trust; or

(3) five days after the process, notice, or demand is deposited in the mail, if mailed postpaid and correctly addressed.

(e) The [Secretary of State] shall keep a record of each process, notice, and demand served pursuant to this section and record the time of, and the action taken regarding, the service.

(f) This section does not affect the right to serve process, notice, or demand in any other manner provided by law.

Comment

Principal Source – Uniform Limited Partnership Act §117.

[For discussion: Should service on a trustee be a sufficient alternative to service on the agent for service?]

ARTICLE 4

TRUSTEES AND TRUST MANAGEMENT

§401. MANAGEMENT OF STATUTORY TRUSTS.

(a) The business and affairs of a statutory trust shall be managed by or under the direction of its trustees.

(b) A trustee, without authorization by the court, may exercise:

(1) powers conferred by the terms of the trust; and

(2) except as limited by the terms of the trust:

(A) all powers over the trust property that an unmarried competent owner has over individually owned property;

(B) any other powers appropriate to achieve the proper investment, management, and distribution of the trust property; and

Comment

Principal Sources – Delaware Statutory Trust Act §3806; Connecticut Statutory Trust Act §34-517; Uniform Trust Code §815.

Paragraph (a) confirms that the trustees are charged with the management of the statutory trust.

By granting the trustees the broadest possible powers, paragraph (b) is intended to overcome the common law rule that trustees have only those powers granted by the trust instrument. This broad authority is denoted by granting the trustees the powers of an unmarried competent owner of individually owned property, unlimited by restrictions that might be placed on such property by marriage, disability, or cotenancy. Note, however, that the existence of a power, regardless of the source of the power, does not speak to the question whether in a particular case it is consistent with the trustees’ obligation of good faith to exercise the power. Cf. John H. Langbein, The Contractarian Basis of the Law of Trusts, 105 Yale L.J. 625, 640-43, 656-57 (1995).

§402. STATUTORY TRUST LIABLE FOR TRUSTEE’S ACTIONABLE CONDUCT. A statutory trust is liable for loss or injury caused to a person, or for a penalty incurred, as a result of a wrongful act or omission, or other actionable conduct, of a trustee acting in the ordinary course of business of the statutory trust or with authority of the statutory trust.

Comment

Principal Source – Uniform Limited Liability Company §302.

The actions of the trustee are imputed to the statutory trust if the trustee is acting with actual or apparent authority or in the ordinary course of business.

§403. NONLIABILITY OF TRUSTEES; RIGHTS OF TRUSTEES IN TRUST PROPERTY.

(a) An obligation of a statutory trust, whether arising in contract, tort, or otherwise, is not the obligation of a trustee. A trustee, by reason of being a trustee, shall not be personally liable to any person other than the statutory trust or a beneficial owner for any act, omission or obligation of the statutory trust or any trustee thereof.

(b) No creditor of a trustee shall have any right to obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the property of the statutory trust with respect to any claim against, or obligation of, such trustee in its individual capacity and not related to the statutory trust.

(c) Legal title to the property of the statutory trust or any part thereof may be held in the name of any trustee of the statutory trust, in its capacity as such, with the same effect as if such property were held in the name of the statutory trust.

Comment

Principal Sources – Delaware Statutory Trust Act §§3803, 3805; Connecticut Statutory Trust Act §34-523; Uniform Limited Partnership Act §303.

Although a common law trust is not a juridical entity, like other organizational forms that are juridical entities the trust provides for separation with respect to creditors of assets belonging to the trustee personally and the assets of the trust. In general, the trustee has no personal liability to the trust’s outside creditors unless the trustee personally guaranteed the obligation, and creditors of the trustee personally have no recourse against the assets of the trust. Hence, the trustee is in effect split into “two distinct legal persons: a natural person contracting on behalf of himself, and an artificial person acting on behalf of the beneficiaries.” Henry Hansmann & Reinier Kraakman, The Essential Role of Organizational Law, 110 Yale L.J. 387, 416 (2000). As a result, creditors of the trustee personally need not worry about the solvency of the trust, and creditors of the trust need not worry about the solvency of the trustee personally. See Henry Hansmann & Ugo Mattei, The Functions of Trust Law: A Comparative Legal and Economic Analysis, 73 N.Y.U. L. Rev. 434 (1998); Robert H. Sitkoff, An Agency Costs Theory of Trust Law, 89 Cornell L. Rev. 621, 641-43 (2004). To police the boundary of the trustee’s personal assets and the assets of the trust, the common law imposes on the trustee duties to earmark trust property and not to commingle it with the trustee’s own. See Restatement (Second) of Trusts §179 (1959).

This section implements the foregoing asset partitioning principles with respect to a statutory trust in three ways. First, paragraph (a) confirms that the trustee has no personal liability to the trust’s outside creditors unless the trustee personally guaranteed the obligation, in which case the trustee’s liability arises from the trustee’s personal guarantee, not by reason of being a trustee. Second, paragraph (b) confirms that the personal creditors of a trustee have no recourse against the assets of the statutory trust. Together, paragraphs (a) and (b) confirm the separateness with respect to creditors of the statutory trust from its trustees. Third, because a statutory trust, unlike a common law trust, is itself a juridical entity, the question arises whether a trustee may hold trust property in the name of the trustee in the trustee’s capacity as such, or if instead trust property must be held only in the name of the statutory trust. Paragraph (c) provides the more permissive answer, giving the trustee the option of holding property in the name of the trustee in the trustee’s capacity as such.

§404. TRUSTEE’S RIGHT TO INFORMATION. Each trustee shall have the right to examine all information relating to the affairs of the business trust for any purpose reasonably related to the trustee=s position as a trustee.

Comment

Principal Source – Delaware Statutory Trust Act §3819.

[For discussion: At the last meeting some argued that this provision should be included in the schedule of mandatory rules. No consensus was reached.]

§405. DIRECTED TRUSTEES AUTHORIZED. The governing instrument may authorize any person, including a beneficial owner, to direct the trustees or other persons in the management of the statutory trust. Neither the power to give direction to a trustee or other persons nor the exercise thereof by any person, including a beneficial owner, shall cause such person to be a trustee. Neither the power to give direction to a trustee or other persons nor the exercise thereof by any person, including a beneficial owner, shall cause such person to have duties, including fiduciary duties, or liabilities relating thereto to the statutory trust to a beneficial owner thereof.

Comment

Principal Sources – Delaware Statutory Trust Act §3806; Connecticut Statutory Trust Act §34-517.

This section ratifies the use of directed trustees, meaning a trustee that must act in accord with the directions of another person. Unless the governing instrument provides otherwise, by reason of having the power to direct the trustee such other person is not a trustee and owes no duties, fiduciary or otherwise, to the statutory trust or the beneficial owners. Such other person may be a beneficial owner.

[For discussion: (1) Investment advisors for mutual funds; (2) the common law control test (see § 505); (2) beneficial owners with control blocks (see §504); and (3) Uniform Trust Code §808, which provides:

(b) If the terms of a trust confer upon a person other than the settlor of a revocable trust power to direct certain actions of the trustee, the trustee shall act in accordance with an exercise of the power unless the attempted exercise is manifestly contrary to the terms of the trust or the trustee knows the attempted exercise would constitute a serious breach of a fiduciary duty that the person holding the power owes to the beneficiaries of the trust.

(c) The terms of a trust may confer upon a trustee or other person a power to direct the modification or termination of the trust.

(d) A person, other than a beneficiary, who holds a power to direct is presumptively a fiduciary who, as such, is required to act in good faith with regard to the purposes of the trust and the interests of the beneficiaries. The holder of a power to direct is liable for any loss that results from breach of a fiduciary duty.]

§406. DELEGATION BY TRUSTEE. A trustee of a statutory trust has the power and authority to delegate to one or more other persons the trustee’s rights and powers to manage and control the business and affairs of the statutory trust, including to delegate to agents, officers, of employees of the trustee or the statutory trust, and to delegate by management agreement or other agreement with, or otherwise to, other persons, including to another trustee. Such delegation by a trustee of a statutory trust shall not cause the trustee to cease to be a trustee of the statutory trust or cause the person to whom any such rights and powers have been delegated to be a trustee of the statutory trust by reason of the delegation.

Comment

Principal Sources – Delaware Statutory Trust Act §3806; Connecticut Statutory Trust Act §34-517.

Consistent not only with the Delaware and Connecticut Statutory Trust Acts, but also the principal trust law reform projects of recent vintage, this section reverses the traditional common law rule against delegation by a trustee. See Uniform Trust Code §807 (2000); Uniform Prudent Investor Act §9; Restatement (Third) of Trusts: Prudent Investor Rule §171 (1992); John H. Langbein, Reversing the Nondelegation Rule of Trust-Investment Law, 59 Mo. L. Rev. 105 (1994). Most states have abrogated the nondelegation rule with legislation based on the Uniform Prudent Investor Act, Uniform Trust Code, or the Restatement (Third) of Trusts.

However, following the lead of the Delaware and Connecticut Statutory Trust Act, this Section’s abrogation of the nondelegation doctrine deviates from prior Uniform Acts and the Restatement (Third) of Trusts in two important respects. First, this section does not explicitly require the trustee to exercise reasonable care, skill, and caution, in selecting, instructing, and monitoring the agent. Instead, the drafting committee contemplated that delegation under this section would be subject to the trustee’s obligation under Section 103(b)(3) to act in good faith. Second, this section treats delegation to a co-trustee in the same manner as delegation to another agent. Compare Uniform Trust Code §703(e) (2000); Restatement (Second) of Trusts §184 (1959).

In choosing to follow the model of the Delaware and Connecticut Statutory Trust Acts rather than the modern trend in ordinary trust law, the drafting committee was influenced by the current practice in existing statutory trusts of creating a trusteeship with respect to some, but not all, aspects of the trust—for example, in the use of a statutory trust for the organization of a mutual fund with an investment advisor, or in the use of a statutory trust in a securitization transaction with a person whose consent is required before the statutory trust can petition for bankruptcy. [For discussion: This section, and the reasoning for its deviations from ordinary trust law, were not fully ventilated in the prior meeting.]

§407. VOTING BY TRUSTEES.

(a) On any matter that is to be voted on by the trustees:

(1) the trustees may act by majority decision unless the governing instrument, this [act], or other applicable law requires the matter being voted on to be decided by more than a majority;

(2) the trustees may take such action without a meeting, without a prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, shall be signed by the trustees having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all trustees entitled to vote thereon were present and voted, and

(3) the trustee may vote in person or by proxy, and such proxy may be granted in writing, by means of electronic transmission, or as otherwise permitted by applicable law.

(b) A consent transmitted by electronic transmission by a trustee or by a person or persons authorized to act for a trustee shall be deemed to be written and signed for purposes of this subsection.

Comment

Principal Sources – Delaware Statutory Trust Act §3806; Connecticut Statutory Trust Act § 34-517; Uniform Trust Code §703.

In accord with Uniform Trust Code §703(a) (2000) and Restatement (Third) of Trusts §39 (2003), paragraph (a)(1) rejects the common law rule requiring unanimity among the trustees of a private trust, replacing it with a default rule requiring a majority.

The remainder of this section allows for maximum flexibility in the mechanics of aggregating the trustees’ votes.

§408. NONLIABILITY OF OFFICERS, EMPLOYEES, MANAGERS, AND AGENTS. An officer, employee, manager or other person acting pursuant to Section 104(b)(9) of this [act], by reason of being an officer, employee, manager, or other person acting pursuant to Section 104(b)(9), shall not be personally liable to any person other than the statutory trust or a beneficial owner for any act, omission or obligation of the statutory trust or any trustee thereof.

Comment

Principal Sources – Delaware Statutory Trust Act §3803; Connecticut Statutory Trust Act §34-523.

As an artificial person, a statutory trust must act through agents. This section confirms that the statutory trust, not the statutory trust’s agents, are liable for the acts, omissions, and obligations of agents acting on the statutory trust’s behalf. [For discussion: Is it necessary/desirable in this comment to get into agency principals of authority, respondeat superior, and the like?]

§409. NONLIABILITY FOR GOOD FAITH RELIANCE ON GOVERNING INSTRUMENT.

(a) Subject to Section 103(b), to the extent that, at law or in equity, a trustee has duties, including fiduciary duties, and liabilities relating thereto to a statutory trust or to a beneficial owner:

(1) The trustee’s duties and liabilities may be expanded, restricted, or eliminated by provisions in a governing instrument; and [For discussion: Should not this provision be integrated with Section 103(b), rather than located here, leaving this Section to deal with good faith reliance?]

(2) Any such trustee acting under a governing instrument shall not be liable to the statutory trust or to any such beneficial owner for the trustee’s good faith reliance on the provisions of such governing instrument.

(b) Subject to Section 103(b) to the extent that, at law or in equity, an officer, employee, manager or other person designated pursuant to Section 104(b)(9) has duties, including fiduciary duties, and liabilities relating thereto to a statutory trust, a beneficial owner or a trustee:

(1) The duties and liabilities of an officer, employee, manager or other person acting pursuant Section 104(b)(9) may be expanded, restricted, or eliminated by provisions in a governing instrument; and [For discussion: Should not this provision be integrated with Section 103(b), rather than located here, leaving this Section to deal with good faith reliance?]

(2) Any such officer, employee, manager or other person acting under a governing instrument shall not be liable to the statutory trust, any beneficial owner or any trustee for such person=s good faith reliance on the provisions of such governing instrument.

Comment

Principal Source – Delaware Statutory Trust Act §3806; Connecticut Statutory Trust Act §34-517.

[Note: Assuming that this section is converted to one of good faith reliance, another model is Uniform Trust Code §1006: “A trustee who acts in reasonable reliance on the terms of the trust as expressed in the trust instrument is not liable to a beneficiary for a breach of trust to the extent the breach resulted from the reliance.”]

§410. INTERESTED TRANSACTIONS. A trustee, officer, employee, manager, or a related person of a trustee, officer, employee, or manager, 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, and transact other business with a statutory trust and, subject to the trustee’s obligation of good faith under Section 103(b)(3), has the same rights and obligations with respect to any such matter as a person who is not a trustee, officer, employee, manager, or related person of a trustee, officer, employee, or manager.

Comment

Principal Sources – Delaware Statutory Trust Act §3806; Model Business Corporation Act §8.60.

This section abrogates the no-further-inquiry rule of traditional trust law, opting instead to for the model of corporate law whereby a self-dealing or other interested transaction is permitted if its terms are fair and reasonable. See Stephen M. Bainbridge, Corporation Law and Economics §7.2 (2002). See also John H. Langbein, Questioning the Trust Law Duty of Loyalty: Sole Interest or Best Interest?, 114 Yale L.J. 929 (2005); Melanie Leslie, Trusting Trustees: Fiduciary Duties and the Limits of Default Rules, 94 Georgetown L.J. ___ (2005); Robert H. Sitkoff, Trust Law, Corporate Law, and Capital Market Efficiency, 28 J. Corp. L. 565, 572-74 (2003).

[Note: At common law, if a trustee engages in self-dealing, meaning a transaction with the trustee or a related party involving trust property, the trustee’s good faith and the fairness of the transaction to the beneficiary is irrelevant. The only defenses are that in the trust instrument the settlor authorized the self-dealing transaction or that the beneficiaries consented to it after full disclosure. See Restatement (Second) of Trusts §§170(1) cmt. t, 216(1) (1959). Even then, the trustee must have acted in good faith and the self-dealing transaction must be objectively fair and reasonable. See id. §§170(2) cmt. t, 216(3).]

[For discussion: Differences in the duty of care in trust law and corporate law.]

§411. INDEMNIFICATION AND EXCLUPATION.

(a) Notwithstanding the absence of a provision for indemnity in the governing instrument of a statutory trust [Query: Necessary opening clause?], a statutory trust has the power to indemnify and hold harmless any trustee or beneficial owner or other person from and against any and all claims and demands on such person by reason of such persons affiliation with or to the statutory trust, provided that the claim or demand does not arise from such person’s bad faith or reckless indifference.

(b) A term in the governing instrument relieving any trustee from liability is unenforceable to the extent that it relieves the trustee from liability for failing to act in good faith. [Note: Section 103(b) allows the governing instrument to define good faith, provided that the definition is not manifestly unreasonable.]

Comment

Principal Sources - Delaware Statutory Trust Act §3817; Connecticut Statutory Trust Act §34-524; Uniform Trust Code §105.

[For discussion: (1) What is the best way to integrate these provisions with Section 103(b)? (2) The Investment Company Act puts a floor on the permissible exculpation or indemnification of managers of investment companies (including mutual funds). Should those rules, see 15 U.S.C. §80a-17(h)-(i); 17 CFR 271.11330, be discussed this comment? To the extent that a statutory trust is an investment company under the 1940 Act, a more permissive state law regarding exculpation is preempted.]

[Note: In Nakahara v. The NS 1991 American Trust, 739 A.2d 770 (Del. Ch. 1998), the only reported decision under the Delaware Statutory Trust Act, the court denied the trustees’ claim for indemnification on the ground of unclean hands.]

ARTICLE 5

BENEFICIARIES AND BENEFICIAL RIGHTS

§501. CONTRIBUTIONS BY BENEFICIAL OWNERS.

(a) A contribution of a beneficial owner to the statutory trust may be in cash, property or services rendered or a promissory note or other obligation to contribute cash or property or to perform services; provided, 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 statutory trust.

(b) A beneficial owner is liable to the statutory trust for failure to perform any promise 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 property or services, the beneficial owner is obligated, at the option of the statutory trust, to contribute cash equal to that portion of the agreed value, as stated in the records of the statutory trust, of the contribution that has not been made. Such option shall be in addition to, and not in lieu of, any other rights, including the right to specific performance, that the statutory trust may have against such beneficial owner under the governing instrument or applicable law.

Comment

Principal Sources – Delaware Statutory Trust Act §3802; Connecticut Statutory Trust Act §34-515.

[For discussion: The last clause of paragraph (a) raises the issue of inviting evasion of mandatory rules in ordinary trust law by a disguising a donative trust as a statutory trust. Paragraph (b) connects to Section 104(b)(16). The question here is whether to cross-reference that section in the main text, or the comment.]

§502. REDEMPTION OF BENEFICIAL INTERESTS. A statutory trust may acquire, by purchase, redemption or otherwise, any beneficial interest in the statutory trust. Any such interest so acquired by a statutory trust shall be deemed canceled.

Comment

Principal Source – Delaware Statutory Trust Act §3818.

[Note: In the prior meeting we were told that this provision, which is lacking in the Connecticut Act, is important for mutual funds because such funds must be able to cancel and then reissue shares (in accordance with the 1940 Act). However, it raises the question of whether to limit redemption of beneficial interests in the case of the statutory trust’s insolvency. See Section 509, below, with which this section should be integrated.]

§503. RIGHTS OF BENEFICIAL OWNERS IN TRUST PROPERTY.

(a) A beneficial owner shall have an undivided beneficial interest in the property of the statutory trust and shall share pro rata in the profits and losses of the statutory trust.

(b) No 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.

(c) A beneficial owner’s beneficial interest in the statutory trust is personal property notwithstanding the nature of the property of the trust. A beneficial owner has no interest in specific statutory trust property.

(d) A beneficial owner’s beneficial interest in the statutory trust is freely transferable.

(e) At the time a beneficial owner becomes entitled to receive a distribution, the beneficial owner has the status of, and is entitled to all remedies available to, a creditor of the statutory trust with respect to the distribution.

(f) A beneficial owner shall have no preemptive right to subscribe to any additional issue of beneficial interests or any other interest.

(g) Where the statutory trust is a registered investment company under the Investment Company Act of 1940, as amended (15 U.S.C. §80a-1 et seq.), any class, group or series of beneficial interests established by the governing instrument with respect to such statutory trust shall be a class, group or series preferred as to distribution of assets or payment of dividends over all other classes, groups or series in respect to assets specifically allocated to the class, group or series as contemplated by §18 (or any amendment or successor provision) of the Investment Company Act of 1940 [15 U.S.C. §80a-18], as amended, and any regulations issued thereunder, provided that this section is not intended to affect in any respect the provisions of Section 304(d).

Comment

Principal Source – Delaware Statutory Trust Act §3805; Connecticut Statutory Trust Act §34-516.

[Note: These provisions are designed to ensure that creditors of the beneficial owners cannot seize trust property. See generally Wendell Fenton & Eric A. Mazie, Delaware Statutory Trusts, in The Delaware Law of Corporations & Business Organizations §19.4 (3d ed. 2005 Supp.). A useful analogy is to the creditors of a corporate shareholder, who normally can seize only the shareholders stock, not the company’s underlying assets. Further discussion of the operation of each of the paragraphs of this section would be helpful for crafting a comment, if one is appropriate. For example, paragraph (a) might be useful to qualify a statutory trust for grantor trust tax treatment (desirable for an I.R.C. 1031 transaction), paragraph (b) appears to resolve the problem with respect to creditors created by (a), and paragraph (c) avoids the need to record deeds that would arise if the beneficial rights were not personal property.]

§504. TRANSACTIONS WITH BENEFICIAL OWNERS. A beneficial owner or a related person of a beneficial owner 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, and transact other business with a statutory trust and, subject to other applicable law, has the same rights and obligations with respect to any such matter as a person who is not a beneficial owner.

Comment

Principal Source – Delaware Statutory Trust Act §3806.

[For discussion: The purpose of this section, which parallels and is analogous in scope to Section 411, should be ventilated. In the course of that discussion we should address the problem of a controlling beneficial owner and whether to say anything about that issue in the comment.]

§505. LIMITED LIABILITY OF BENEFICIAL OWNERS. The beneficial owners of a statutory trust shall be entitled to the same limitation of personal liability extended to shareholders of domestic corporations.

Comment

Principal Sources – Delaware Statutory Trust Act §3803; Connecticut Statutory Trust Act §34-523.

By providing as a default rule that the beneficial owners of a statutory trust enjoy the same limited liability as shareholders of domestic corporations, this section overrules the common law “control test” of Williams v. Inhabitants of Milton, 102 N.E. 355 (Mass. 1913). See also Restatement (Second) of Agency §14B (1958). Under the control test, if the beneficial owners had a say in the administration of the trust or the right to remove and replace the trustees, the beneficial owners might be held liable for the debts of the trust. Hence, under this Section a beneficial owner may participate in the management of the statutory trust without exposure to personal liability for the debts of the statutory trust.

[Note: See Wendell Fenton & Eric A. Mazie, Delaware Statutory Trusts, in The Delaware Law of Corporations & Business Organizations §19.3 (3d ed. 2005 Supp.): “Courts applying the ‘control test’ have often come to inconsistent results under seemingly similar circumstances. These results are often explicable on the basis of the state’s policy of prohibiting the litigants from achieving limited liability without having to comply with the state’s corporate franchise laws.” There probably will be a cite-able further collecting of authorities and discussion in Robert H. Sitkoff, The Rise of the Statutory Business Trust [in progress].]

[For discussion: (1) whether this comment should reference or take a position on the possibility of veil-piercing, and (2) how to connect this provision with Section 405, which authorizes directed trusteeships with a beneficial owner providing the direction.]

§506. VOTING BY BENEFICIAL OWNERS. On any matter that is to be voted on by the beneficial owners:

(1) the beneficial owners may take such action without a meeting, without a prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, shall be signed by the beneficial owners having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all interests in the statutory trust entitled to vote thereon were present and voted, and

(2) the beneficial owners may vote in person or by proxy, and such proxy may be granted in writing, by means of electronic transmission, or as otherwise permitted by applicable law.

A consent transmitted by electronic transmission by a beneficial owner or by a person or persons authorized to act for a beneficial owner shall be deemed to be written and signed for purposes of this subsection.

Comment

Principal Source – Delaware Statutory Trust Act §3806.

[See Section 104(b)(6).]

§507. DERIVATIVE ACTIONS.

(a) A beneficial owner may maintain a derivative action in the [court of general jurisdiction] to enforce a right of a statutory trust if:

(1) the beneficial owner first makes a demand on the trustees, requesting that the trustees cause the statutory trust to bring an action to enforce the right, and the trustees do not bring the action within a reasonable time; or

(2) a demand would be futile.

(b) A derivative action may be maintained only by a person that is a beneficial at the time the action is commenced and:

(1) that was a beneficial owner when the conduct giving rise to the action occurred; or

(2) whose status as a beneficial owner devolved upon the person 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.

(1) the date and content of plaintiff’s demand and the trustees’ response to the demand; or

(2) why demand should be excused as futile.

(d) Except as otherwise provided in subsection (e):

(1) any proceeds or other benefits of a derivative action, whether by judgment, compromise, or settlement, belong to the statutory trust and not to the derivative plaintiff;

(2) if the derivative plaintiff receives any proceeds, the derivative plaintiff shall immediately remit them to the statutory trust.

(e) If a derivative action is successful in whole or in part, the court may award the plaintiff reasonable expenses, including reasonable attorney’s fees, from the recovery of the statutory trust.

(f) A derivative action may not be discontinued or settled without the court=s approval.

Comment

Principal Sources - Uniform Limited Partnership Act §§1002-1005; Delaware Statutory Trust Act §3816; Connecticut Statutory Trust Act §34-522.

[For discussion: (1) Section 104(b)(2) explicitly authorizes the addition in the governing instrument of further limits on derivative actions; (2) Should this section be mandatory—that is, could a governing instrument prohibit all derivative actions?; and (3) Should paragraph (f) be retained?]

§508. ACCESS TO, AND CONFIDENTIALITY OF, INFORMATION AND RECORDS.

(a) Each beneficial owner of a statutory trust has the right, subject to such reasonable standards (including standards governing what information and documents are to be furnished at what time and location and at whose expense) as may be established by the trustees [Question: Use the same “manifestly unreasonable” test as in Section 103(b)?], to obtain from the statutory trust from time to time upon reasonable demand for any purpose reasonably related to the beneficial owner=s interest as a beneficial owner of the statutory trust:

(1) a copy of the governing instrument and certificate of trust and all amendments thereto, together with copies of any written powers of attorney pursuant to which the governing instrument and any certificate and any amendments thereto have been executed;

(2) a current list of the name and last known mailing address of each trustee; and

(3) financial statements or other information regarding the business and financial condition of the statutory trust over the prior three years.

(b) A statutory trust may maintain its records in other than a written form if such form is capable of conversion into a written form within a reasonable time.

Comment

Principal Source – Delaware Statutory Trust Act §3819.

[For discussion: Neither (1) the scope of the beneficial owner’s information rights nor (2) whether they should be mandatory was resolved at the prior meeting. In addition to Delaware Statutory Trust Act §3819, for other models see ULLCA §408; RMBCA §16.02; and UTC §813.]

§509. LIMITATIONS ON DISTRIBUTIONS TO A BENEFICIAL OWNER.

(a) A statutory trust may not make a distribution in violation of the governing instrument.

(b) A statutory trust may not make a distribution if after the distribution:

(1) the statutory trust would not be able to pay its debts as they become due in the ordinary course of the statutory trust’s activities; or

(2) the statutory trust’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the statutory trust were to be dissolved, wound up, and terminated at the time of the distribution, to satisfy the preferential rights upon dissolution, winding up, and termination of beneficial owners whose preferential rights are superior to those of persons receiving the distribution.

(c) A statutory trust may base a determination that a distribution is not prohibited under subsection (b) on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances.

(d) Except as otherwise provided in subsection (g), the effect of a distribution under subsection (b) is measured:

(1) in the case of distribution by purchase, redemption, or other acquisition of a transferable interest in the statutory trust, as of the date money or other property is transferred or debt incurred by the statutory trust; and

(2) in all other cases, as of the date:

(A) the distribution is authorized, if the payment occurs within 120 days after that date; or

(B) the payment is made, if payment occurs more than 120 days after the distribution is authorized.

(e) A statutory trust’s indebtedness to a beneficial owner incurred by reason of a distribution made in accordance with this section is at parity with the statutory trust’s indebtedness to its general, unsecured creditors.

Comment

Principal Source – Uniform Limited Partnership Act §508.

[For discussion: Whether to add a Section prohibiting distributions to the beneficial owners when the entity is insolvent or otherwise unable to pay its debts as they arise in the ordinary course of business. Proposed Section 509, which is based on the corresponding provision in ULPA, is such a provision. Note, however, that this provision is in tension with Section 502. For another model, see RMBCA §6.40 (Distributions to Shareholders):

(a) A board of directors may authorize and the corporation may make distributions to its shareholders subject to restriction by the articles of incorporation and the limitation in subsection (c).

(b) If the board of directors does not fix the record date for determining shareholders entitled to a distribution (other than one involving a purchase, redemption, or other acquisition of the corporation’s shares), it is the date the board of directors authorizes the distribution.

(1) the corporation would not be able to pay its debts as they become due in the usual course of business; or

(2) the corporation’s total assets would be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.

(d) The board of directors may base a determination that a distribution is not prohibited under subsection (c) either on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances.

(e) Except as provided in subsection (g), the effect of a distribution under subsection (c) is measured:

(1) in the case of distribution by purchase, redemption, or other acquisition of the corporation’s shares, as of the earlier of (i) the date money or other property is transferred or debt incurred by the corporation or (ii) the date the shareholder ceases to be a shareholder with respect to the acquired shares;

(2) in the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; and

(3) in all other cases, as of (i) the date the distribution is authorized if the payment occurs within 120 days after the date of authorization or (ii) the date the payment is made if it occurs more than 120 days after the date of authorization.

(f) A corporation’s indebtedness to a shareholder incurred by reason of a distribution made in accordance with this section is at parity with the corporation’s indebtedness to its general, unsecured creditors except to the extent subordinated by agreement.]

ARTICLE 6

MERGER, CONSOLIDATION, CONVERSION, AND DISSOLUTION

[For discussion: In the previous meeting it was decided to add to this Article a dissolution provision based on Delaware Statutory Trust Act §3808. Sections 604 and 605 implement this decision. It was also decided to base the merger, consolidation, and conversion provisions of Article 6 on the Model Entity Transaction Act, augmenting META with provisions for mergers, consolidations, and conversions between statutory trusts under this Act. Hence, in this meeting further attention should be given to the specifics of how to integrate META with this Act, and the rules that should govern merger or consolidation between statutory trusts. Among other issues for discussion are: (1) What percentage of the beneficiaries must approve a merger? (2) If less than all, will there be an appraisal or other form of dissenters’ rights? For convenience, the corresponding Delaware Statutory Trust Act provisions are cited below.]

§601. MERGER OR CONSOLIDATION. See Delaware Statutory Trust Act §3815.

§602. CONVERSION FROM ANOTHER ENTITY. See Delaware Statutory Trust Act §3820.

§603. CONVERSION TO ANOTHER ENTITY. See Delaware Statutory Trust Act §3821.

§604. DISSOLUTION OF A STATUTORY TRUST.

(a) Upon dissolution of a statutory trust and until the filing of a statement of cancellation as provided in Section 203, the trustees or other persons who under the governing instrument are responsible for winding up the statutory trust’s affairs may, in the name of and for and on behalf of the statutory trust:

(1) prosecute and defend suits, whether civil, criminal or administrative,

(2) gradually settle and close the statutory trust business,

(3) dispose of and convey the statutory trust property,

(4) discharge or make reasonable provision for the statutory trust liabilities, and

(5) distribute to the beneficial owners any remaining assets of the statutory trust.

(b) A statutory trust that has dissolved shall pay or make reasonable provision to pay all claims and obligations, including all contingent, conditional or unmatured claims and obligations, known to the statutory trust and all claims and obligations that are known to the statutory trust but for which the identity of the claimant is unknown.

(1) If there are sufficient assets, such claims and obligations shall be paid in full and any such provision for payment shall be made in full.

(2) If there are insufficient assets, such claims and obligations shall be paid or provided for according to their priority and, among claims and obligations of equal priority, ratably to the extent of assets available therefor.

(3) Any remaining assets shall be distributed to the beneficial owners.

(c) Any person, including any trustee, who under the governing instrument is responsible for winding up a statutory trust’s affairs who has complied with this Section shall not be personally liable to the claimants of the dissolved statutory trust by reason of such person’s actions in winding up the statutory trust.

Comment

Principal Source – Delaware Statutory Trust Act §3808.

§605. DISSOLUTION OF A SERIES.

(a) A series established in accordance with Section 104(b)(3)-(5) may be dissolved and its affairs wound up without causing the dissolution of the statutory trust or any other series thereof.

(1) The dissolution, winding up, liquidation or termination of the statutory trust or any series thereof shall not affect the limitation of liability with respect to a series established in accordance with Section 304(d).

(2) A series established in accordance with Section 104(b)(3)-(5) is dissolved and its affairs shall be wound up at the time or upon the happening of events specified in the governing instrument of the statutory trust.

(3) Upon dissolution of a series of a statutory trust, the persons who under the governing instrument of the statutory trust are responsible for winding up such series’s affairs may, in the name of the statutory trust and for and on behalf of the statutory trust and such series, take all actions with respect to the series as are permitted under paragraph (a) of Section 604 and shall provide for the claims and obligations of the series and distribute the assets of the series as provided under paragraph (b) of Section 604.

(b) Any person, including any trustee, who under the governing instrument is responsible for winding up such series’s affairs who has complied with this Section shall not be personally liable to the claimants of the dissolved series by reason of such person’s actions in winding up the series.

Comment

Principal Source – Delaware Statutory Trust Act §3808.

This section parallels and is analogous in scope and effect to Section 604, except that it applies to a series rather than the entire statutory trust.

ARTICLE 7

FOREIGN STATUTORY TRUSTS

§701. GOVERNING LAW.

(a) The laws of the State or other jurisdiction under which a foreign statutory trust is organized shall govern its organization and internal affairs and the liability of its beneficial owners and trustees.

(b) A foreign statutory trust may not be denied a certificate of authority by reason of any difference between the laws of the jurisdiction under which the foreign statutory trust is organized and the laws of this State.

(c) A certificate of authority does not authorize a foreign statutory trust to engage in any business or exercise any power that a domestic statutory trust may not engage in or exercise in this State.

Comment

Principal Sources – Uniform Limited Partnership Act §901; Delaware Statutory Trust Act §3851; Connecticut Statutory Trust Act §34-530.

Paragraph (a) parallels and is analogous in scope and effect to Section 302 (internal affairs rule for domestic statutory trusts). Paragraph (b) allows for a foreign statutory trust to operate domestically even if the law governing it is different from the laws governing domestic statutory trusts, but under paragraph (c) a foreign statutory trust cannot engage in any business or exercise any power that a domestic statutory trust could not.

§702. APPLICATION FOR CERTIFICATE OF AUTHORITY.

(a) A foreign statutory trust may apply for a certificate of authority to transact business in this State by delivering an application to the [Secretary of State] for filing. The application must state:

(1) the name of the foreign statutory trust and, if the name does not comply with Section 107, an alternate name adopted pursuant to Section 706(a).

(2) the name of the State or other jurisdiction under whose law the foreign statutory trust is organized;

(3) the street and mailing address of the foreign statutory trust=s principal office and, if the laws of the jurisdiction under which the foreign statutory trust is organized require the foreign statutory trust 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 foreign statutory trust=s initial agent for service of process in this State;

(b) A foreign statutory trust shall deliver with the completed application a certificate of existence 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 under whose law the foreign statutory trust is organized.

Comment

Principal Source – Uniform Limited Partnership Act §902.

A certificate of authority applied for under this section is different than a certificate of authorization furnished under Section 208.

§703. AMENDMENT OR RESTATEMENT OF CERTIFICATE.

(a) In order to amend its certificate of authority, a foreign statutory trust must deliver to the [Secretary of State] for filing an amendment or, pursuant to [Article 6], articles of merger stating:

(1) the name of the foreign statutory trust;

(2) the date of filing of its initial certificate; and

(3) the changes that the amendment makes to the certificate as most recently amended or restated.

(b) A trustee that knows that any information in a filed certificate of trust was false when the certificate was filed or has become false due to changed circumstances shall promptly:

(1) cause the certificate to be amended; or

(2) if appropriate, deliver to the [Secretary of State] for filing a statement of correction pursuant to Section 206.

(d) A restated certificate of statutory trust may be delivered to the [Secretary of State] for filing in the same manner as an amendment.

(e) Subject to Section 205(c), an amendment or restated certificate is effective when filed by the [Secretary of State].

Comment

Principal Source – Uniform Limited Partnership Act §202.

[For discussion: There is no parallel to this section in Article 9 of ULPA, which deals with foreign limited partnerships. Instead, per a suggestion at the prior drafting session, this section was based on ULPA 202, which is the comparable section for domestic statutory trusts.]

§704. ACTIVITIES NOT CONSTITUTING TRANSACTING BUSINESS.

(a) Activities of a foreign statutory trust which do not constitute transacting business in this State within the meaning of this [article] include:

(1) maintaining, defending, and settling an action or proceeding;

(2) holding meetings of its trustees or carrying on any other activity concerning its internal affairs;

(3) maintaining accounts in financial institutions;