UNIFORM
STATUTORY TRUST ENTITY ACT
SECTION 101.
SHORT TITLE. This [act] may
be cited as the Uniform Statutory Trust Entity Act.
Comment
Because this Act provides for the creation and use of a statutory trust
as a form of business organization, it might seem that “Uniform Business Trust
Act,” “Uniform Statutory Business Trust Act,” or “Uniform Statutory Trust Act” would
be a better title. However, after
consultation with experts in the structured finance, bankruptcy, mutual fund,
and estate planning industries, the drafting committee rejected those and other
such titles in favor of “Uniform Statutory Trust Entity Act.”
The
drafting committee included the word “entity” in the Act’s title for two
reasons. First, the creature of this act
is indeed a trust entity. It has the
power to sue, be sued, and transact in its own name. See Sections 307-308. A common-law
trust, by contrast, is not a juridical entity, but rather a fiduciary
relationship whereby the trustee acts in a fiduciary capacity with respect to
the trust property. Second, the word “entity” in the title differentiates this
act from the Uniform Trust Code, which is a codification of the common law of
trusts. However, to conform with
prevailing usage under the Delaware Statutory Trust Act, the entity that arises
under this Act is called a “statutory trust,” not a “statutory trust entity.” See Section 102(16). Further, because the drafting committee
wanted a statutory trust under this act to receive treatment under applicable
regulatory law similar to that of a Delaware statutory trust, the entity
features of a statutory trust under this act closely resemble those of a
Delaware statutory trust.
The
drafting committee had three reasons for eschewing the phrase “business trust.” First, under this act a statutory trust need
not have a business or commercial purpose.
On the contrary, Section 303 confirms that a statutory trust may have
any lawful purpose other than a predominantly donative purpose.
Second,
the drafting committee endeavored to avoid any implication on whether a
statutory trust would qualify as a “business trust” under the bankruptcy code. 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(9). Bankruptcy eligibility is a significant issue
for trusts used as special purpose entities in structured finance transactions,
a principal use of the modern statutory trust in practice. Such trusts are often designed to be “bankruptcy
remote.” Thus, 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 “business trusts” under the bankruptcy
code.
Third,
the drafting committee was influenced by the revealed preference for “statutory trust” over “business trust” in
practice as evidenced by the dominant position of the Delaware Statutory Trust
Act relative to the statutory or business trust acts of the other states. In 2002 Delaware recast the “Delaware
Business Trust Act” as the “Delaware Statutory Trust Act,” replacing nearly
every reference to “business trust” with “statutory trust.” See
73 Del. Laws 329 (2002).
SECTION 102.
DEFINITIONS. In this [act]:
(1) “Beneficial owner” means the
owner of a beneficial interest in a statutory trust or foreign statutory
trust.
(2) “Certificate of trust” means the
record filed by the [Secretary of State] under Section 201. The term includes the record as amended or
restated.
(3) “Common-law trust” means a
fiduciary relationship with respect to property arising from a manifestation of
intent to create that relationship and subjecting the person that holds title
to the property to duties to deal with the property for the benefit of charity
or for one or more persons, at least one of which is not the sole trustee,
whether the purpose of the trust is donative or commercial. The term includes the type of trust known at
common law as a “business trust”, “Massachusetts trust”, or “Massachusetts
business trust”.
(4) “Designated office” means:
(A) for a statutory
trust, the street address that it is required to designate under Section
201(b)(2); or
(B) for a foreign
statutory trust, its principal office.
(5) “Foreign statutory trust” means
a trust that is formed under the laws of a jurisdiction other than this state
that would be a statutory trust if formed under the laws of this state.
(6) “Governing instrument” means the
trust instrument and certificate of trust.
(7) “Jurisdiction”, used to refer to
a political entity, means a state, foreign country, or subdivision of a foreign
country.
(8) “Person” means an individual,
corporation, statutory trust, estate, partnership, limited liability company,
association, joint venture, public corporation, government or governmental
subdivision, agency, or instrumentality, or any other legal or commercial
entity.
(9) “Property” means all property,
whether real, personal, or mixed, or tangible or intangible, or any interest
therein.
(10) “Qualified foreign statutory
trust” means a foreign statutory trust that is authorized to do business in
this state.
(11) “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.
(12)
“Related person”, with respect to a person that is a trustee, officer,
employee, manager, or beneficial owner, means:
(A) the spouse of the
person;
(B) a child, parent,
sibling, grandchild, or grandparent of the person, or the spouse of one of
them;
(C) an individual having
the same residence as the person;
(D) a trust or estate of
which a related person described in subparagraph (A), (B), or (C) is a
substantial beneficiary;
(E) a trust, estate,
legally incapacitated person, conservatee, or minor for which the person is a
fiduciary; or
(F) a person that
directly or indirectly controls, is controlled by, or is under common control
with, the person.
(13) “Series trust” means a
statutory trust that has one or more series created under Section 401.
(14) “Sign” means, with the present
intent to authenticate or adopt a record:
(A) to execute or adopt
a tangible symbol; or
(B) to attach to or
logically associate with the record an electronic symbol, sound, or process.
(15) “State” means a state of the
United States, the District of Columbia, Puerto Rico, the United States Virgin
Islands, or any territory or insular possession subject to the jurisdiction of
the United States.
(16) “Statutory trust” means an
entity formed under this [act].
(17) “Trust” includes a common-law
trust, statutory trust, and foreign statutory trust.
(18) “Trust instrument” means a
record other than the certificate of trust which provides for the governance of
the affairs of a statutory trust and the conduct of its business. The term includes a trust agreement, a
declaration of trust, and bylaws.
(19) “Trustee” means a person
designated, appointed, or elected as a trustee of a statutory trust or foreign
statutory trust in accordance with the governing instrument or applicable law.
Comment
Principal
Sources – Delaware Statutory
Trust Act §3801; Connecticut Statutory Trust Act §34-501; Uniform Limited
Partnership Act §102 (2001); SEC Rule 144(a)(1), 17 C.F.R.
§230.144(a)(1).
Paragraphs (2), (6), and (18) define
“certificate of trust,” “governing instrument,” and “trust instrument”
respectively. The certificate of trust
is the record that under Section 201 must be delivered to a public official for
filing to form a statutory trust. The
trust instrument is the transaction document that typically provides for the
governance of the statutory trust. Unlike the certificate of trust, the trust
instrument need not be made part of the public record, and typically it is not. Together, the certificate of trust and the
trust instrument compose the governing instrument. The terms “governing instrument” and “trust
instrument” are in the singular to conform with prevailing usage even though
there may be more than one document that qualifies as a trust instrument. Section
103(c) makes authorization of multiple instruments explicit. Conflicts between
the certificate of trust and the governing instrument are resolved pursuant to
Section 201(e).
Paragraph
(3) defines “common-law trust” in accordance with Restatement (Third) of Trusts
§2 (2003), except that as defined herein the term expressly includes a common
law business trust. See also Uniform
Trust Code §102, cmt. (2000).
Paragraph (12) defines the term “related
person,” which is used in Sections 507 and 607 concerning the legality of
certain interested transactions. In
using but not defining the term “substantial” in Paragraph (12)(D), the
drafting committee contemplated that a totality of the circumstances test would
apply. Section 512 defines the term “independent
trustee” with respect to a statutory trust that is an investment company under
the Investment Company Act of 1940.
Paragraph (13) defines the term
“series trust” [to come].
Paragraph (19) defines “trustee” as a
person designated as such in accordance with the governing instrument or
applicable law. For discussion of
trustee appointment, see the Comment to Section 501.
SECTION 103.
GOVERNING INSTRUMENT: SCOPE,
LIMITATIONS, AND AMENDMENT.
(a) Except as
otherwise provided in subsection (b) or (f), the governing instrument governs:
(1) the
management, affairs, and conduct of the business of a statutory trust; and
(2) the rights,
interests, duties, obligations, and powers of, and the relations among, the
trustees, the beneficial owners, the statutory trust, and other persons.
(b) To the extent
the governing instrument does not otherwise provide for a matter described in
subsection (a), this [act] governs the matter.
(c) The governing
instrument may include one or more instruments, agreements, declarations,
bylaws, or other records and refer to or incorporate any record.
(d) The governing
instrument may be amended with the approval of all the beneficial owners.
(e) Subject to
subsection (f), without limiting the terms that may be included in a governing
instrument, the governing instrument may:
(1) provide the
means by which beneficial ownership is determined and evidenced;
(2) limit a
beneficial owner’s right to transfer its beneficial interest;
(3) provide for
one or more series under [Article] 4;
(4) to the extent
that voting rights are granted under the governing instrument, include terms relating
to:
(A) notice of the
date, time, place, or purpose of any meeting at which any matter is to be voted
on;
(B) waiver of
notice;
(C) action by
consent without a meeting;
(D) establishment
of record dates, quorum requirements, or voting in person, by proxy, any form
of communication that creates a record, telephone, or video conference, or in
any other manner; or
(E) any other
matter with respect to the exercise of the right to vote;
(5) provide for
the creation of one or more classes of trustees, beneficial owners, or
beneficial interests having separate rights, powers, or duties;
(6) provide for
any action to be taken without the vote or approval of any particular trustee
or beneficial owner, or classes of trustees, beneficial owners, or beneficial interests,
including:
(A) amendment of
the governing instrument;
(B) merger,
conversion, or reorganization;
(C) appointment
of trustees;
(D) sale, lease,
exchange, transfer, pledge, or other disposition of all or any part of the
property of the statutory trust or the property of any series thereof; and
(E) dissolution
of the statutory trust;
(7)
provide for the creation of a statutory trust, including the creation of a
statutory trust to which all or any part of the property, liabilities, profits,
or losses of a statutory trust may be transferred or exchanged, and for the
conversion of beneficial interests in a statutory trust, or series thereof,
into beneficial interests in the new statutory trust or series thereof;
(8) provide for
the appointment, election, or engagement of agents or independent contractors
of the statutory trust or delegates of the trustees, or agents, officers,
employees, managers, committees, or other persons that may manage the business
and affairs of the statutory trust, designate their titles, and specify their
rights, powers, and duties;
(9) provide
rights to any person, including a person that is not a party to the governing
instrument;
(10) subject to
paragraph (11), specify the manner in which the governing instrument may be amended,
including, unless waived by all persons for whose benefit the condition or
requirement was intended:
(A) a condition
that a person that is not a party to the instrument must approve the amendment
for it to be effective; and
(B) a requirement
that the governing instrument may be amended only as provided in the governing
instrument or as otherwise permitted by law.
(11) provide that
a person may comply with paragraph (10) by a representative authorized by the
person orally, in a record, or by conduct;
(12) provide that
a person becomes a beneficial owner, acquires a beneficial interest, and is
bound by the governing instrument if the person complies with the conditions
for becoming a beneficial owner set forth in the governing instrument, such as
payment to the statutory trust or to a previous beneficial owner;
(13) provide that
the statutory trust or the trustees, acting for the statutory trust, hold
beneficial ownership of any income earned on securities held by the statutory
trust that are issued by any business entity formed, organized, or existing
under the laws of any jurisdiction;
(14) provide for
the establishment of record dates; and
(15) grant to, or
withhold from, a trustee or beneficial owner, or class of trustees or
beneficial owners, the right to vote, separately or with any or all other
trustees or beneficial owners, or class of trustees or beneficial owners, on
any matter.
(f) The governing
instrument may not:
(1) vary the
requirements of [Article] 2;
(2) vary the
choice of governing law under Section 301;
(3) negate the
exclusion of a predominantly donative purpose under Section 303;
(4) vary the provisions
pertaining series trusts in Sections 401, 402(b), 403, and 404(c);
(5) vary the
standards of conduct for trustees under Section 505, but the governing
instrument may prescribe the standards by which good faith, best interests of
the statutory trust, and care that a person in a similar position would
reasonably believe appropriate under similar circumstances are determined, if
the standards are not manifestly unreasonable;
(6) restrict the
nonliability under Section 506 of a trustee or other person that relies in good
faith on the terms of the governing instrument, the records of the statutory
trust, or the opinions, reports, or statements of an expert, but the governing
instrument may prescribe the standards for assessing whether the reliance was
in good faith, if the standards are not manifestly unreasonable;
(7) restrict the
right of a trustee to information under Section 508, but the governing
instrument may prescribe the standards for assessing whether information is
reasonably related to the trustee=s
discharge of the trustee’s duties as trustee, if the standards are not
manifestly unreasonable;
(8) vary the
prohibition under Section 509 of indemnification, advancement of expenses, or
exoneration for conduct involving bad faith, willful misconduct, or reckless
indifference;
(9) vary the
obligation of a trustee under Section 510(c) not to follow a direction that is
manifestly contrary to the terms of the governing instrument or would
constitute a serious breach of fiduciary duty by the trustee;
(10) restrict the
right of a judgment creditor of a beneficial owner to seek a charging order
under Section 606;
(11) restrict the
right of a beneficial owner to information under Section 608, but the governing
instrument may prescribe the standards for assessing whether information is
reasonably related to the beneficial owner’s ability to enforce its rights as a
beneficial owner, if the standards are not manifestly unreasonable;
(12) restrict the
right of a beneficial owner to bring an action under Section 609, but the
governing instrument may subject the right to additional standards and
restrictions, including the a requirement that beneficial owners owning a
specified amount or type of beneficial interest including, in a series trust,
an interest in the series, join in bringing the action, if the additional
standards and restrictions are not manifestly unreasonable;
(13) vary the
provisions pertaining to conversion and merger in Sections 701, 704, 705, 708,
and 709;
(14) vary the
provisions pertaining to dissolution in Sections 801(1) and 802 through 808;
(15) vary the
provisions relating to foreign statutory trusts in [Article] 9; or
(16) vary the
miscellaneous provisions in [Article] 10.
Comment
Principal
Sources – Uniform Trust Code §105 (2000); Revised Uniform Limited Liability
Company Act §110 (2006); Uniform Limited Partnership Act §110 (2001); Uniform
Limited Liability Company Act §103 (1996); Revised Uniform Partnership Act §103
(1997); Uniform Commercial Code §§1-302, 9-603 (2000); Delaware Statutory Trust
Act §3806.
Default
rules. Paragraphs (a) and (b)
emphasize that the Act primarily states default rules. Most of the Act’s provisions may be
overridden by the terms of the governing instrument (paragraph (a)), but if the
governing instrument does not provide for a matter, then the Act applies
(paragraph (b)).
Governing
instrument(s). [discussion of
paragraph (c) to come.]
Amending
the governing instrument. Paragraph (d) provides for a mechanism to amend
the governing instrument in circumstances where the governing instrument does
not already do so. In such a case, paragraph (d) provides that the governing
instrument may be amended by unanimous agreement of the beneficial owners.
Consistent with prevailing commercial practice, the drafting committee assumed
that in most instances the governing instrument will provide for amendments, a
possibility expressly contemplated by paragraphs (e)(6)(A) and (e)(10). In such
a case the amendment mechanisms stated in the governing instrument prevail over
paragraph (d).
Illustrative statement of
permissive terms. The purpose of
paragraph (e) is to collect in a single provision the various permissive rules
regarding the scope of the governing instrument that are scattered throughout
the Delaware and Connecticut Statutory Trust Acts. The main exception concerns the allowable
remedies for a beneficial owner’s breach in Section 603(c).
The list of permissive rules stated
in paragraph (e) is meant to be illustrative and not to limit the generality of
paragraph (a). The drafting committee concluded that the demand of third
parties and transactional planners to see language that expressly authorizes
specific terms justified inclusion of a detailed list in addition to the broad
statement of freedom of contract in paragraph (a) and Section 105. Statutory confirmation reduces
transaction costs by resolving doubts in practice over the permissibility of
such provisions. Similar reasoning underlies the provision of
a detailed schedule of powers in Uniform Trust Code §816 (2000) in addition to
the broad general statement in UTC §815.
Mandatory
Rules. Paragraph (f) schedules the provisions
of this act that are not subject to override in the governing instrument. The provisions included in this schedule are
the only rules that have mandatory application to a statutory trust.
Most of the provisions scheduled in
paragraph (f) concern the rights of nonparties or public filing and notice
requirements. By contrast, with two
exceptions all the provisions of this Act concerning the powers and duties of a
trustee, relations among trustees, and the rights and interests of a beneficial
owner may be overridden or at least altered by the terms of the governing
instrument.
The first exception is the mandatory
prohibition of indemnification, advancement, or exoneration for conduct
involving bad faith, willful misconduct, or reckless indifference in paragraph
(f)(8). This exception is familiar trust
law. See Uniform Trust Code §1008 (2000);
Restatement (Third) of Trusts §96 (T.D. No. 5, 2009); 4 Austin Wakeman Scott,
William Franklin Fratcher, and Mark L. Ascher, Scott and Ascher on Trusts
§24.27.3 (5th ed. 2007). For a general
discussion, see John H. Langbein, Mandatory Rules in the Law of Trusts, 98 Nw.
U.L. Rev. 1105, 1121-25 (2004); Melanie
B. Leslie, Trusting Trustees: Fiduciary Duties and the Limits of Default Rules,
94 Georgetown L.J. 67 (2005).
The Delaware Statutory Trust Act
likewise limits the permissible scope of exoneration. Delaware Statutory Trust Act §3806(e) provides
that the “governing instrument may provide for the limitation or elimination of
any and all liabilities for breach of contract and breach of duty (including
fiduciary duties) of a trustee ... ; provided, that the governing instrument
may not eliminate the implied contractual covenant of good faith and fair
dealing.”
Limitations on permissible
exoneration are also familiar corporate and alternative entity law. See, e.g., Delaware General Corporation Law
§102(b)(7); Delaware Limited Liability Company Act §18-1101; [to come: citation to MBCA 2.02(b)(4)
and/or other uniform acts].
The second exception is paragraph (f)(9),
which makes mandatory the invalidity under Section 510(c) of a direction to a
trustee or other person that is manifestly contrary to the terms of the
governing instrument or would constitute a serious breach of fiduciary
duty. The reference to serious breach of
fiduciary duty is meant to exclude an inconsequential, immaterial, or technical
breach that does not harm the trust or a beneficial owner. For some purposes, trust law distinguishes
between serious and not serious breaches of trust. See, e.g., UTC §706(b)(1); 2 Scott and Ascher
on Trusts, supra, §11.10, at p. 661.
However, the effect of paragraph (f)(8) is limited by paragraph (f)(5),
which allows the trustee’s fiduciary duty to be altered by the governing
instrument if the alteration is not manifestly unreasonable.
Paragraphs (f)(5), (f)(6), (f)(7), (f)(11),
and (f)(12) allow the governing instrument to alter the nature of the trustee’s
fiduciary obligation; the nonliability of a trustee or another for good faith
reliance on the governing instrument, records of the statutory trust, or
opinions of experts; the right of a trustee to information; the right of a
beneficial owner to information; and the right of a beneficial owner to bring
an action, but only if the alteration is not “manifestly unreasonable.” In opting for the “manifestly unreasonable”
standard instead of Delaware’s “good faith and fair dealing” formulation, see
Delaware Statutory Trust Act §3806(c) and (e), the drafting committee took
notice of the use of the term “manifestly unreasonable” in Revised Uniform
Limited Liability Company Act §110(d) (2006); Uniform Limited Partnership Act
§110(b) (2001), Revised Uniform Partnership Act §103(b) (1997), Uniform Limited
Liability Company Act §103(b) (1996), and intended a similar meaning here. See Mark
J. Loewenstein, Fiduciary Duties and Unincorporated Business Entities: In Defense of the “Manifestly Unreasonable”
Standard, 41 Tulsa L. Rev. 411 (2006).
Relationship
to Mandatory Rules and the Uniform Trust Code. Section 104 provides that the law of this
state pertaining to common-law trusts supplements this act. However, it also provides that the governing
instrument of a statutory trust may override or modify the application to the
statutory trust of any rule pertaining to common-law trusts. Accordingly, in a jurisdiction that has also
enacted the Uniform Trust Code, the UTC will apply to a statutory trust only to
the extent that the UTC’s provisions are not displaced by this act or the
governing instrument. No provision of
the UTC, including the rules stated in UTC §105 that are mandatory with respect
to a common-law trust, is mandatory with respect to a statutory trust. Likewise, any common-law rule that is
mandatory with respect to a common-law trust may nonetheless be overridden with
respect to a statutory trust by the governing instrument of the statutory
trust. The governing instrument of a
statutory trust may override or alter any rule of trust law other than those
scheduled in paragraph (f) of this section.
To prevent evasion of the public
policy limitations on donative transfers that underpin the mandatory rules
applicable to a common-law trust, see John
H. Langbein, Mandatory Rules in the Law of Trusts, 98 Nw. U.L. Rev. 1105 (2004),
Section 302 of this Act provides that a statutory trust may not have “a predominantly
donative purpose.” For further discussion of the relationship
between this Act, the common law, and the Uniform Trust Code, see the Prefatory
Note to this Act under the heading “Relationship to Common-Law trusts and the
Uniform Trust Code” and the comments to Sections 104 and 303.
Registered
Investment Companies. The Investment Company Act of 1940 (the “1940 Act”) supersedes
this Act with respect to a statutory trust that registers as an investment
company. For such a statutory trust the
1940 Act imposes additional mandatory rules.
See, e.g., the Comments to Sections 207 (name of statutory trust), 503
(action by trustees), 507 (interested transactions), 509 (indemnification,
advancement, and exoneration), and 511 (delegation by trustee).
SECTION 104.
APPLICABILITY OF TRUST LAW. The law of this
state pertaining to common-law trusts supplements this [act]. However, the governing instrument may
supersede or modify application to the statutory trust of any law of this state
pertaining to common-law trusts.
Comment
Principal
Sources – Uniform Trust Code §106 (2000); Delaware Statutory Trust Act
§3809; Connecticut Statutory Trust Act §34-519.
Trust
Law Supplements this Act. This
Section provides that state trust law supplements this act and the terms of the
governing instrument. In looking to
trust law to supplement this act and the governing instrument, the drafting
committee was strongly influenced by
the popularity of the Delaware Statutory Trust Act, which likewise looks to
trust law, in comparison to the business trust acts (such as those in Arizona,
Indiana, Kansas, Mississippi, Montana, Oregon, Tennessee, Washington, and West
Virginia) that look to corporate law.
No
Mandatory Rules Other Than Those Scheduled in Section 103(f). This Section also confirms that, except
for the mandatory rules scheduled in Section 103(f), the governing instrument
may override any rule or law pertaining to common-law trusts that would
otherwise be applicable to a statutory trust under this Section.
Relationship
to the Uniform Trust Code. In a jurisdiction that has also enacted the
Uniform Trust Code, the effect of this Section is to make the UTC applicable to
a statutory trust, but only to the extent that the UTC’s provisions — including
the mandatory rules scheduled in UTC §105 — are not displaced by this act or
the statutory trust’s governing instrument.
For further discussion, see the comment to Section 103 under the heading
“Relationship to Mandatory Rules and the Uniform Trust Code.”
Remedies. Under this Section, the law of remedies
for breach of trust applies to a statutory trust unless the governing
instrument provides otherwise. See 4 Austin
Wakeman Scott, William F. Fratcher, and Mark L. Ascher, Scott and Ascher on
Trusts §24.9 (5th ed. 2006); UTC §§1001-1003 (2000). However, when a breach of trust injures the
trust rather than a beneficial owner directly, such remedies are properly
sought in a derivative suit under Section 609 rather than in a direct suit by
the beneficiary because a statutory trust is itself an entity. See ALI Principles of Corporate Governance
§7.01 (1994).
SECTION 105.
RULE OF CONSTRUCTION.
(a) This [act] must be liberally
construed to give maximum effect to the principle of freedom of contract and to
the enforceability of governing instruments.
(b) The presumption that a civil
statute in derogation of the common law is construed strictly does not apply to
this [act].
Comment
Principal
Sources – Delaware Statutory Trust Act §3825; Connecticut Statutory Trust
Act §34-546; Uniform Statute and Rule Construction Act
§18 (1995).
Paragraph (a) emphasizes the freedom of contract afforded
to transactional planners by the Uniform Statutory Trust Entity Act, which is
primarily a default statute. The only
mandatory rules applicable to a statutory trust are those scheduled in Section 103(f). The drafting committee contemplated that
section 105(a) would apply to the construction of Section 103(f).
Paragraph
(b) admonishes the courts not to apply to this act the canon of
construction that statutes in derogation of the common law are to be strictly
construed. The drafting committee
included this admonition because several of this act’s provisions are designed
specifically to preclude the application to a statutory trust of one or more common-law
trust principles. See, e.g., Sections 203,
302, 304, 306, 502, 503, 504, 505, 506, 507, 511, [list to be confirmed/expanded]. Those provisions, which deliberately derogate
the common law, should be interpreted in accord with that purpose.
SECTION 201.
CERTIFICATE OF TRUST.
(a)
To form a statutory trust, a person must deliver a certificate of trust to the
[Secretary of State] for filing.
(b) A
certificate of trust must state:
(1)
the name of the statutory trust, which must comply with Section 207;
(2)
the street and mailing address of the designated office of the trust;
(3)
the name and street and mailing address of the initial agent of the trust for
service of process; and
(4)
whether the trust may have one or more series.
(c) A
certificate of trust may contain any term in addition to those required by
subsection (b).
(d)
Subject to Section 204(c), a statutory trust is formed when a certificate of
trust that complies with subsection (b) is filed by the [Secretary of State].
(e) A
filed certificate of trust, a filed statement of cancellation or change, or
filed articles of conversion or merger prevail over inconsistent terms of a
trust instrument.
Comment
Principal Sources – Uniform
Limited Partnership Act §201 (2001); Delaware Statutory Trust Act §3810;
Connecticut Statutory Trust Act §34-503.
Unlike a common-law trust, a
statutory trust is a creature of statute.
A statutory trust comes into existence only if (1) a certificate of
trust is prepared and delivered to the specified public official for filing,
and (2) the public official files the certificate. See Section 204. Filing rules are typical of limited liability
entities. Such rules serve a notice
function, alerting interested parties to the creation and existence of a new
juridical entity with limited liability. The certificate of trust also identifies
the statutory trust’s initial agent for service of process and, in connection
with Section 401, the certificate of trust puts third parties on notice if the
statutory trust might further segregates its property and liabilities by
creating one or more series.
Although formed by making a public
filing, a statutory trust is also a creature of contract. As such, it will be possible, though
improper, for the trust instrument to be inconsistent with the certificate of
trust or other public filings relating to the statutory trust. Paragraph (d) provides that in such
circumstances the public filing controls.
Under Section 103(f)(1), this
Section is not subject to override by the governing instrument.
SECTION 202.
AMENDMENT OR RESTATEMENT OF CERTIFICATE OF TRUST.
(a)
To amend its certificate of trust, a statutory trust must deliver to the
[Secretary of State] for filing an amendment, articles of conversion, or
articles of merger stating:
(1)
the name of the trust;
(2)
the date of filing of its initial certificate; and
(3)
the changes to the certificate.
(b) A
trustee that knows or has reason to know that any information in a filed
certificate of trust was incorrect when the certificate was filed or has become
incorrect shall promptly:
(1)
cause the certificate to be amended; or
(2)
if appropriate, deliver to the [Secretary of State] for filing a statement of
correction.
(c) A
restated certificate of trust must be delivered to the [Secretary of State] for
filing in the same manner as an amendment.
(d)
An amended or restated certificate of trust is effective as provided in Section
204(c).
Comment
Principal Sources – Uniform
Limited Partnership Act §202 (2001); Delaware Statutory Trust Act §3810;
Connecticut Statutory Trust Act §34-503.
Paragraph
(a) provides a mechanism for updating a statutory trust’s filed certificate of
trust. Paragraph (b) imposes an
obligation directly on the trustee rather than on the statutory trust.
Under
Section 103(f)(1), this Section is not subject to override by the governing
instrument.
SECTION 203.
SIGNING OF RECORDS.
(a)
A record delivered by the statutory trust to the [Secretary of State] for
filing pursuant to this [act] must be signed by at least one of the trustees.
(b)
Any person may sign by an attorney in fact any record filed pursuant to this
[act].
Comment
Principal Sources – Uniform
Limited Partnership Act §204 (2001); Delaware Statutory Trust Act §3811;
Connecticut Statutory Trust Act §34-504.
Paragraph
(b) confirms that the signing of a public record by a trustee is a delegable
act, ensuring that the discredited common law nondelegation rule will not apply.
See Uniform Trust Code §807 (2000); Restatement (Third) of Trusts §80 (2007).
Under
Section 103(f)(1), this Section is not subject to override by the governing
instrument.
SECTION 204.
DELIVERY TO AND FILING OF RECORDS BY [SECRETARY OF STATE]; EFFECTIVE
TIME AND DATE.
(a) A
record authorized or required to be delivered to the [Secretary of State] for
filing under this [act] must be captioned to describe the subject of the record
and be in a medium permitted by the [Secretary of State]. If all filing fees have been paid, unless the
[Secretary of State] determines that the record does not comply with the filing
requirements of this [act], the [Secretary of State] shall file the record and
make available a copy of the filed record to the person on whose behalf the
record was filed.
(b)
On request and payment of the required fee, the [Secretary of State] shall send
to any person a certified copy of a record filed in the office of the
[Secretary of State] pursuant to this [act].
(c)
Except as otherwise provided in Sections 205 and 211, a record delivered to the
[Secretary of State] for filing under this [act] may specify an effective time
and a delayed effective date. Except as
otherwise provided in this [act], a record filed by the [Secretary of State] is
effective:
(1)
if the record does not specify an effective time or delayed effective date, on
the date and at the time the record is filed as evidenced by the [Secretary of
State’s] endorsement of the date and time on the record;
(2)
if the record specifies an effective time but not a delayed effective date, on
the date the record is filed at the time specified in the record;
(3)
if the record specifies a delayed effective date but not an effective time, at
12:01 a.m. on the earlier of:
(A)
the specified date; or
(B)
the 90th day after the record is filed;
or
(4)
if the record specifies an effective time and a delayed effective date, at the
specified time on the earlier of:
(A)
the specified date; or
(B)
the 90th day after the record is filed.
Comment
Principal Sources – Uniform
Limited Partnership Act §206 (2001); Delaware Statutory Trust Act §3812;
Connecticut Statutory Trust Act §34-505.
For
a record prepared by a private person to become part of the public record under
this act, (1) someone must put a properly prepared version of the record into
the possession of the public official specified in the act as the appropriate
filing officer, and (2) the filing officer must determine that the record
complies with the filing requirements of this act and then officially make the
record part of the public record. This
Act refers to the first step as “delivery to the [Secretary of State] for
filing” and refers to the second step as “filing.” Hence, “filing” is an official action.
Under
paragraph (a), the caption need only indicate the title of the record — for
example, “Certificate of Trust” or “Statement of Change for Statutory Trust.” Filing officers typically note on a filed
record the fact, date, and time of filing.
Copies provided by the filing officer under paragraph (a) should contain
that notation. This Act does not provide
a remedy if the filing officer wrongfully fails or refuses to file a record.
Paragraph
(c) allows most records to have a delayed effective date, up to 90 days after
the date the record is filed by the filing officer. A record specifying a
longer delay will not be rejected. Instead, under paragraphs (c)(3) and (4),
the delayed effective date is adjusted by operation of law to the “90th day
after the record is filed.” This Act
does not require the filing officer to notify anyone of the adjustment.
Consistent
with the existing statutory trust acts, but inconsistent with most corporate
codes, this Act makes no provision for collecting a franchise tax. See generally Marcel Kahan and Ehud Kamar,
Price Discrimination in the Market for Corporate Law, 86 Cornell L. Rev. 1205, 1218-33 (2001).
Under
Section 103(f)(1), this Section is not subject to override by the governing
instrument.
SECTION 205.
CORRECTING FILED RECORD.
(a)
If at the time of filing a record contained incorrect information or was
defectively or erroneously signed, a statutory trust or qualified foreign statutory
trust shall delivery to the [Secretary of State] for filing a statement of
correction to correct the record.
(b) A
statement of correction under subsection (a):
(1)
may not state a delayed effective date;
(2)
must describe the record to be corrected, including its filing date, or attach
a copy of the record as filed;
(3)
must specify the incorrect information and the reason it is incorrect or the
manner in which the signing was defective or erroneous; and
(4)
must correct the incorrect information or defective or erroneous signature.
(c) A
statement of correction filed by the [Secretary of State] under subsection (a)
is effective:
(1)
except as otherwise provided in paragraph (2), retroactively as of the
effective date of the record the statement corrects; or
(2)
with respect to a person that relied on the uncorrected record and would be
adversely affected by the correction, when filed.
Comment
Principal Source – Uniform
Limited Partnership Act §207 (2001).
A
statement of correction is appropriate only to correct inaccuracies that
existed or signatures that were defective “at the time of filing.” A statement of correction may not be used to
amend or revise a record that was accurate when filed but has become inaccurate
as a result of subsequent events.
Under
paragraph (c), a statement of correction relates back by way of retroactive
application except against persons that have relied on the uncorrected record
and would be adversely affected if the correction related back.
Under
Section 103(f)(1), this Section is not subject to override by the governing
instrument.
SECTION 206.
CERTIFICATE OF GOOD STANDING.
(a)
The [Secretary of State], on request and payment of the required fee, shall
furnish to the person making the request a certificate of good standing for a
statutory trust if the records filed in the [office of the Secretary of State]
show that:
(1)
the [Secretary of State] has filed a certificate of trust;
(2)
all fees and penalties due under this [act] or other law to the [Secretary of
State] have been paid;
(3)
the most recent annual report of the trust required by Section 213 has been
filed by the [Secretary of State];
(4)
a statement of cancellation or dissolution has not been filed by the [Secretary
of State]; and
(5)
the [Secretary of State] has not filed a notice of administrative dissolution
under Section 806 or, if the [Secretary of State] has filed such a notice, that
the [Secretary of State] has filed a declaration of reinstatement under Section
807.
(b) A
certificate of good standing must state:
(1)
the name of the trust;
(2)
that the trust was formed under the laws of this state and the date of
formation; and
(3)
that subsection (a) has been satisfied.
(c)
Subject to any qualification stated in the certificate, a certificate of good
standing issued by the [Secretary of State] may be relied upon as conclusive
evidence that the statutory trust is in good standing as of the date the
certificate is issued.
Comment
Principal Source – Uniform Limited
Partnership Act §209 (2001).
A
certificate of good standing can reveal only information present in the public
record. Under this Act significant
information bearing on the status of a statutory trust may be outside the
public record.
Section
905 provides for the issuance of a certified copy of the certificate of
registration for a qualified foreign statutory trust.
Under
Section 103(f)(1), this Section is not subject to override by the governing
instrument.
SECTION 207.
NAME OF STATUTORY TRUST.
(a)
Except as otherwise provided in subsection (c), the name of a statutory trust
must be distinguishable in the records of the [Secretary of State] from:
(1)
the name of any person that is already incorporated, organized, formed, or
authorized to do business in this state; and
(2)
any name reserved under Section 208 [or other state laws allowing the
reservation or registration of business names, including fictitious or assumed
name statutes].
(b)
The name of a statutory trust may contain the words: “company”, “association”,
“club”, “foundation”, “fund”, “institute”, “society”, “union”, “syndicate”,
“limited”, or “trust”, or words or abbreviations of similar import, and may
contain the name of a beneficial owner, a trustee, or any other person.
(c) A
person may apply to the [Secretary of State] to use a name that does not comply
with subsection (a). The [Secretary of
State] shall authorize use of the name applied for if, as to a conflicting
name:
(1)
the present user, registrant, or owner of the conflicting name consents in a
signed record to the use and submits an undertaking in a form satisfactory to
the [Secretary of State] to dissolve or to change the conflicting name to a
name that complies with subsection (a) and is distinguishable in the records of
the [Secretary of State] from the name applied for;
(2)
the applicant delivers to the [Secretary of State] a certified copy of the
final judgment of a court of competent jurisdiction establishing the
applicant’s right to use in this state the name applied for; or
(3)
the applicant delivers to the [Secretary of State] proof satisfactory to the
[Secretary of State] that the present user, registrant, or owner of the
conflicting name:
(A)
has merged with the applicant;
(B)
has been converted into the applicant; or
(C)
has transferred substantially all of its property, including the conflicting
name, to the applicant.
(d)
Subject to Section 906, this section applies to any foreign statutory trust
that does business in this state, that has a certificate of registration to do
business in this state, or that has applied for a certificate of registration.
Comment
Principal Sources – Uniform
Limited Partnership Act §108 (2001); Delaware Statutory Trust Act §3814.
The
drafting committee considered but decided against requiring that the name of a
statutory trust contain a traditional limited liability appellation. Such a
requirement would be inconsistent with current practice under the Delaware Statutory
Trust Act. However, the drafting committee contemplated that an enacting
jurisdiction with a strong policy regarding names of limited liability entities
might modify this Section accordingly. Moreover, other regulatory law will
sometimes limit the range of permissible names notwithstanding this
Section. For example, the names of
mutual funds typically do not contain a limited liability appellation, but
Section 35(d) of the Investment Company Act of 1940, which is applicable to a
statutory trust that is a registered investment company, prohibits “materially
deceptive or misleading” names. 15 U.S.C. §80a-34(d). See also Rule 35d-1, 17
C.F.R. §270.35d-1 (listing types of names that have been deemed “materially
deceptive or misleading”).
Under
Section 103(f)(1), this Section is not subject to override by the governing
instrument.
SECTION 208.
RESERVATION OF NAME.
(a)
The exclusive right to the use of a name that complies with Section 207 may be
reserved by:
(1)
a person intending to form a statutory trust under this [act] and to adopt the
name;
(2)
a statutory trust or a qualified foreign statutory trust intending to adopt the
name;
(3)
a foreign statutory trust intending to obtain a certificate of registration to
do business in this state and adopt the name;
(4)
a person intending to organize a foreign statutory trust and intending to have
it obtain a certificate of registration to do business in this state and adopt
the name;
(5)
a foreign statutory trust formed under the name; or
(6)
a foreign statutory trust formed under a name that does not comply with Section
207, but the name reserved under this paragraph may differ from the foreign
statutory trust’s name only to the extent necessary to comply with Section 207.
(b) A person may apply to reserve a name under
subsection (a) by delivering to the [Secretary of State] for filing an
application that states the name to be reserved and the paragraph of subsection
(a) that applies. If the [Secretary of
State] finds that the name is available for use by the applicant, the
[Secretary of State] shall file a statement of name reservation and thereby
reserve the name for the exclusive use of the applicant for a 120-day period.
(c) A person that has reserved a name pursuant to
subsection (b) may reserve the same name for additional 120-day periods. A person having a current reservation for a
name may not apply for an additional120-day period for the same name until 90
days have elapsed under the current reservation.
(d) A person that has reserved a name under this
section may deliver to the [Secretary of State] for filing:
(1)
a notice of transfer that states the reserved name, the name and street and
mailing address of some other person to which the reservation is to be
transferred, and the paragraph of subsection (a) that applies to the person; or
(2)
a notice of termination of the person’s reservation.
(e) A
transfer or termination under subsection (d) is effective as provided in
Section 204(c).
Comment
Principal source – Uniform
Limited Partnership Act §109 (2001).
Under
Section 103(f)(1), this Section is not subject to override by the governing
instrument.
SECTION 209.
AGENT FOR SERVICE OF PROCESS.
(a) A
statutory trust or a qualified foreign statutory trust shall designate and
continuously maintain in this state an agent for service of process.
(b)
An agent for service of process of a statutory trust or qualified foreign
statutory trust must be an individual who is a resident of this state or a
person incorporated, organized, formed, or authorized to do business in this
state which maintains an office in this state.
Comment
Principal Sources – Uniform
Limited Partnership Act §114 (2001); Delaware Statutory Trust Act §3804;
Connecticut Statutory Trust Act §34-507.
Under
Section 201(b)(3), the initial designation of a statutory trust’s agent for
service of process is made in the original certificate of trust. Under Section 902(a)(4), the initial
designation of a foreign statutory trust’s agent for service of process is made
in the original application for a certificate of registration. The initial designation may be changed
pursuant to a statement of change under Section 210, by an amendment to the
certificate of trust under Section 202, or by an annual report under Section 213.
Under
Section 103(f)(1), this Section is not subject to override by the governing
instrument.
SECTION 210.
CHANGE OF DESIGNATED OFFICE OR AGENT FOR SERVICE OF PROCESS. A statutory
trust or qualified foreign statutory trust may change its agent for service of
process, the address of its agent for service of process, or its designated
office by delivering to the [Secretary of State] for filing a statement of
change containing:
(1)
the name of the trust;
(2)
the street and mailing address of the current designated office of the trust;
(3)
if the designated office is to be changed, the street and mailing address of
the new designated office;
(4)
the name and street and mailing address of the current agent of the trust for
service of process; and
(5)
if the current agent for service of process or an address of the agent is to be
changed, the new information.
Comment
Principal Source – Uniform
Limited Partnership Act §115 (2001).
This
section uses the term “may” rather than “must” in the first sentence because a
statutory trust may also change the information by an amendment to its
certificate of trust under Section 202. Further, if the information currently
in the public record is accurate, a statutory trust or qualified foreign
statutory trust may change the information in an annual report under Section
213.
Under
Section 103(f)(1), this Section is not subject to override by the governing
instrument.
SECTION 211.
RESIGNATION OF AGENT FOR SERVICE OF PROCESS.
(a)
To resign as an agent for service of process of a statutory trust or qualified
foreign statutory trust, the agent must deliver to the [Secretary of State] for
filing a statement of resignation containing:
(1)
the name of the trust;
(2)
the name of the agent; and
(3)
a statement that the agent resigns as agent for service of process.
(b) A
resigning agent shall transmit a copy of a statement of resignation to the
designated office of the statutory trust or qualified foreign statutory trust
and 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 terminates on the 31st day after the
[Secretary of State] files the statement of resignation under subsection (a).
Comment
Principal Source – Uniform
Limited Partnership Act §116 (2001).
This
section provides the exclusive means for an agent to resign without cooperation
from the statutory trust or qualified 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.
Unlike
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 of the agent’s resignation. An effective date included in a
statement of resignation is disregarded.
To
satisfy Section 209(a), the statutory trust or qualified foreign statutory trust
must designate a new agent for service of process before the effective date of
the current agent’s resignation. If the
statutory trust or foreign statutory trust fails to do so, under Section 212(b)
service on the statutory trust or foreign statutory trust may be made on the
Secretary of State.
Under
Section 103(f)(1), this Section is not subject to override by the governing
instrument.
SECTION 212.
SERVICE OF PROCESS.
(a)
An agent for service of process appointed by a statutory trust or qualified
foreign statutory trust is an agent of the trust for service of any process,
notice, or demand required or permitted by law to be served on the trust.
(b)
If a statutory trust or qualified foreign statutory trust no longer has a
registered agent, or if its registered agent cannot with reasonable diligence
be served, the trust may be served by registered or certified mail, return
receipt requested, at its principal office in accordance with any applicable
rules and procedures. Service is effected under this subsection at the earliest
of:
(1)
the date the agent for the statutory trust or qualified foreign statutory trust
receives the process, notice, or demand;
(2)
the date shown on the return receipt, if signed on behalf of the trust; or
(3)
five days after the process, notice, or demand is deposited with the United
States Postal Service, if correctly addressed and with sufficient postage.
(c)
If process, notice, or demand cannot be served on a statutory trust or
qualified foreign statutory trust pursuant to subsection (b), service may be
made by handing a copy to the manager, clerk, or other individual in charge of
any regular place of business or activity of the trust if the individual served
is not a plaintiff in the action.
(d)
This section does not affect the right to serve process, notice, or demand in
any other manner provided by law.
Comment
Principal Source – Uniform
Limited Partnership Act §117 (2001); Model Registered Entity Act §13 ([year]).
Under
Section 103(f)(1), this Section is not subject to override by the governing
instrument.
SECTION 213.
[ANNUAL] [BIENNIAL] REPORT FOR [SECRETARY OF STATE].
(a) A
statutory trust or qualified foreign statutory trust must deliver to the
[Secretary of State] for filing [an annual] [a biennial] report that contains
the name of the trust and:
(1)
in the case of a statutory trust:
(A)
the street and mailing address of its designated office; and
(B)
the name and street and mailing address of its agent for service of process; or
(2)
in the case of a qualified foreign statutory trust:
(A)
any alternate name adopted under Section 906;
(B)
the name of the state or other jurisdiction of formation of the trust;
(C)
the street and mailing address of its principal office and, if the laws of the
jurisdiction of formation of the trust require it to maintain an office in that
jurisdiction, the street and mailing address of that office; and
(D)
the name and street and mailing address of its agent for service of process in
this state.
(b)
Information in [an annual] [a biennial] report under this section must be
current as of the date the annual report is delivered to the [Secretary of
State] for filing.
(c)
The first [annual] [biennial] report under this section must be delivered to
the [Secretary of State] after [January 1] and before [April 1] of the year
following the calendar year in which a statutory trust was formed or a
qualified foreign statutory trust was authorized to do business in this state. The report must be delivered to the
[Secretary of State] after [January 1] and before [April 1] of each subsequent
[second] calendar year.
(d)
If [an annual] [a biennial] report does not contain the information required in
subsection (a), the [Secretary of State] shall notify the trust promptly and
return the report to it for correction.
If the report is corrected to contain the information required in
subsection (a) and is delivered to the [Secretary of State] by the 30th day
after the date of the notice, it is timely delivered.
(e) If [an annual] [a biennial] under this
section contains an address of a designated office or the name or address of an
agent for service of process which differs from the information shown in the
records of the [Secretary of State] immediately before the filing, the
differing information in the report is considered a statement of change under
Section 210.
Comment
Source – Uniform Limited Partnership
Act §210 (2001).
A
statutory trust that fails to comply with this section is subject to administrative
dissolution. See Section 806.
[Comment on bracketed options to come.]
Under
Section 103(f)(1), this Section is not subject to override by the governing
instrument.
SECTION 301.
GOVERNING LAW. The law of
this state governs:
(1)
the internal affairs of a statutory trust;
(2)
the liability of a beneficial owner as beneficial owner and a trustee as
trustee for a debt, obligation, or other liability of a statutory trust or a
series thereof; and
(3)
the enforceability of a debt, obligation, or other liability of the statutory
trust or a series thereof against the property of the trust or any series
thereof.
Comment
Principal
Sources – Connecticut Statutory Trust Act §34-502; Uniform Limited
Partnership Act §106 (2001); Revised Uniform Limited Liability Company Act §106
(2006).
Under paragraph (1) the internal
affairs of a statutory trust are governed by the law of this state even if the
trust operates in other states. Although the term “internal affairs” may be indeterminate at its edges,
the concept certainly includes interpretation and enforcement of the governing
instrument and relations among the trustees, beneficial owners, and the
statutory trust. See Restatement
(Second) of Conflict of Laws §302, cmt. a (1971) (defining “internal affairs”
with reference to corporate law as “the relations inter se of the corporation,
its shareholders, directors, officers or agents”).
Paragraph
(2) supports Sections 304 and 305 by confirming that the liability of a
beneficial owner or a trustee for the debts, obligations, or other liabilities
of the statutory trust is governed by the law of this state. This paragraph is stated separately from
Paragraph (1) because the liability of a beneficial owner or trustee to third
parties is arguably not an internal affair.
See Restatement (Second) of Conflict of Laws §307 (1971) (treating
shareholders’ liability separately from the internal affairs doctrine).
Paragraph
(3) [discussion to come].
Section
901 states rules for qualified foreign statutory trusts that parallel and are
analogous in scope to those of this section.
Under Section 103(f)(3), this
Section is not subject to override by the governing instrument.
SECTION 302.
STATUTORY TRUST AS ENTITY. A statutory trust is an entity separate from
its trustees and beneficial owners.
Comment
Principal
Sources – Delaware Statutory Trust Act §§3810; Connecticut Statutory Trust
Act §§34-502.
Because this section implements an
entity conception of the statutory trust, it confirms that any prior judicial
decision that holds that a common law business trust violates the state’s
corporate law, trust law, or public policy is not applicable to a statutory
trust. Such decisions reflect the now outmoded concern that a business trust
could be used to evade regulatory limitations on the corporate form. See, e.g.,
[to come].
SECTION 303.
PERMISSIBLE PURPOSES.
(a) Except as otherwise provided in
subsection (b), a statutory trust may have any lawful purpose.
(b) A statutory trust may not have a
predominantly donative purpose.
Comment
Principal
Sources – Delaware Statutory Trust Act §3801; Connecticut Statutory Trust
Act §34-502a.
Under this section, a statutory
trust may be formed for any lawful purpose except a predominantly donative
purpose. Thus, in addition to use in a
commercial transaction, a statutory trust may be used in a custodial or other
context that might not be for profit. See
Section 307. The limitation to lawful
activity addresses the concern that some states limit the type of organizations
that may be used in regulated industries such as banking and insurance.
The exclusion of a predominantly
donative purpose addresses the concern
that a statutory trust might be used in an estate planning or other donative
context to evade public policy limitations on donative transfers and common-law
trusts. See, e.g., Uniform Trust Code §105 (2000); John H. Langbein, Mandatory
Rules in the Law of Trusts, 98 Nw. U.L. Rev. 1105 (2004). The
drafting committee declined the suggestion to prohibit a statutory trust from
having a charitable purpose on the grounds that a statutory trust with a
charitable purpose would be covered by existing regulatory law applicable to
charitable entities. See Marion R. Fremont-Smith, Governing Nonprofit
Organizations: Federal and State Law and Regulation 187-427 (2004).
By
prohibiting a statutory trust from having a predominantly donative purpose, the
drafting committee avoided the necessity of designing a comprehensive schedule
of mandatory rules applicable only to statutory trusts with such a purpose, a
task made more difficult by the increasing differentiation among the states on
these matters, particularly with respect to the rights of the settlor’s
creditors in a self-settled trust and the continued application of the Rule
Against Perpetuities to interests held in trust. See Robert H. Sitkoff and
Max M. Schanzenbach, Jurisdictional Competition for Trust Funds: An Empirical
Analysis of Perpetuities and Taxes, 115 Yale L.J. 356 (2005).
Examples of mandatory rules applicable
to common-law trusts that drafters might otherwise try to avoid by using a
statutory trust include the following:
·
the duty of a trustee to act in good faith and
in accordance with the terms and purposes of the trust and the interests of the
beneficiaries;
·
the requirement that a trust and its terms be
for the benefit of one or more ascertainable beneficiaries, and that the trust
have a purpose that is lawful, not contrary to public
policy, and possible to achieve;
·
the power of the court
to modify or terminate a trust;
·
the effect of a
spendthrift provision and the rights of the settlor’s and the beneficiary’s
creditors and assignees to reach the property of a trust;
·
the power of the court
to adjust a trustee’s compensation specified in the terms of the trust which is
unreasonably low or high;
·
the power of the court
to remove a trustee for a serious breach of trust;
·
the duty of the
trustee to give information and make reports concerning the administration of
the trust to the beneficiary;
·
the effect of an exoneration
clause that purports to limit or eliminate the duties or liabilities of a
trustee to a beneficiary;
·
the rights of a party,
other than a trustee or beneficiary, that transacts with the trustee in the
trustee’s capacity as such;
·
the rules against
perpetuities, accumulations of income, and suspension of the power of
alienation; and
·
the power of the court
to take such action and exercise such jurisdiction as may be necessary in the
interests of justice.
Most of the foregoing rules are referenced in UTC §105,
the UTC’s schedule of mandatory rules. For
discussion of why the rules that are mandatory with respect to a common-law
trust are not mandatory with respect to a statutory trust, see the comments to
Sections 103 and 105.
Section
401(c) states a similar rule for the series of a statutory trust.
Under Section 103(f)(2), this
Section is not subject to override by the governing instrument.
SECTION 304.
STATUTORY TRUST SOLELY LIABLE FOR DEBTS, OBLIGATIONS, OR OTHER
LIABILITIES OF STATUTORY TRUST. A debt, obligation, or other liability of a
statutory trust or series thereof is solely a debt, obligation, or other
liability of the trust or series thereof.
A beneficial owner, trustee, agent of the trust, or agent of the trustee
is not personally liable, directly or indirectly, by way of contribution or
otherwise, for a debt, obligation, or other liability of the trust or series
thereof solely by reason of being or acting as a trustee, beneficial owner,
agent of the trust, or agent of the trustee.
Comment
Principal Sources – Delaware Statutory
Trust Act §3803; Connecticut Statutory trust Act §34-523; Revised Uniform
Partnership Act §306 (1994); Uniform Limited Liability Company Act §303;
Uniform Limited Partnership Act §§303, 404 (2001); Uniform Trust Code §507
(2000).
This
section implements the concept that the statutory trust is an entity separate
from its trustees and beneficial owners in three ways. First, this section confirms that a
trustee, as a manager of the statutory trust, is not liable for the debts,
obligations, and liabilities of the statutory trust or a series thereof. As
such, this section overrides the outmoded common law rule that held the trustee
liable for the debts of the trust and then gave the trustee a right to
indemnity out of the trust fund. Compare Restatement (Second) of Trusts §§244,
261 (1959) (stating the old rule), with Uniform Trust Code §1010 (2000)
(eliminating the personal liability of the trustee for debts, obligations, and
liabilities arising in the trustee’s fiduciary capacity). However, nothing in
this Section limits the personal liability of the trustee to the statutory
trust for breach of duty under Section 505.
[Further discussion, cross-reference to
series, to come.]
Second,
this section confirms that the
statutory trust is solely liable for the debts, obligations, and liabilities of
the trust.
Third, this section confirms the
limited liability of a beneficial owner and trustee by providing that neither a
beneficial owner nor trustee of a statutory trust is liable for the debts,
obligations, or liabilities of the statutory trust. An agent of the beneficial
owner or trustee is likewise not liable for the debts, obligations, or liabilities
of the statutory trust. This section therefore confirms that the “control test”
of Williams v. Inhabitants of Milton, 102 N.E. 355 (Mass. 1913), and
Restatement (Second) of Agency §14B (1958), is not applicable to a statutory
trust. Under the control test, if a beneficiary
of a common law business trust had a say in the administration of the trust or
the right to remove and replace the trustees, the beneficiary might be held
liable for the debts of the trust. By
contrast, under this section a beneficial owner may participate in the
management of the statutory trust without exposure to liability for the debts
of the statutory trust. For discussion
of a beneficial owner’s limited liability under the Delaware Statutory Trust
Act, see Wendell Fenton and Eric A. Mazie, Delaware Statutory Trusts, in 2 R. Franklin Balotti and Jesse A.
Finkelstein, The Delaware Law of
Corporations and Business Organizations §19.3 (3d ed. 2005 Supp.). [Citation
to be updated.]
SECTION 305.
NO CREDITOR RIGHTS IN TRUST PROPERTY. Except as
otherwise provided in Section 606, a creditor of a beneficial owner or trustee
may not obtain possession of, or otherwise exercise legal or equitable remedies
with respect to, the property of a statutory trust.
Comment
Principal Sources - Delaware Statutory
Trust Act §3805; Connecticut Statutory Trust Act §34-516; Uniform Trust Code
§507 (2000); Revised Uniform Partnership Act §203 (1994); Uniform Limited
Liability Company Act §501 (1996); Uniform Limited Partnership Act §701 (2001).
This
Section implements the concept that a statutory trust is an entity separate
from its trustees and beneficial owners by confirming that a creditor of a beneficial
owner or a trustee has no recourse against the property of the statutory
trust.
With
respect to trustees, the rule of this paragraph is familiar from the operation
of common-law trusts. See Uniform Trust
Code §507 (2000); Restatement (Third) of Trusts §42, cmt. c (2003);
Restatement (Second) of Trusts §308 (1959). The rule of this section is also
consistent with bankruptcy law. Property
in which the trustee holds legal title as trustee is not part of the trustee’s
bankruptcy estate. See 11 U.S.C.
§541(d).
With respect to beneficial owners, for
discussion of the parallel provision in the Delaware Statutory Trust Act, see
Wendell Fenton and Eric A. Mazie, Delaware
Statutory Trusts, in 2 R. Franklin Balotti and Jesse A. Finkelstein, The Delaware Law of Corporations and
Business Organizations §19.4, at 19-9 – 19-10 (3d ed. 2005 Supp.). However, [cross-reference
to charging order provision to come.]
For
a general discussion of asset partitioning rules in organizational law, see Henry
Hansmann and Reinier Kraakman, The
Essential Role of Organizational Law, 110 Yale L.J. 387 (2000); Henry
Hansmann and Ugo Mattei, The Functions
of Trust Law: A Comparative
Legal and Economic Analysis, 73 N.Y.U. L. Rev. 434 (1998). See
also Henry Hansmann, Reinier Kraakman, and Richard
Squire, Law and the Rise of the Firm, 119 Harv. L. Rev. 1333 (2006).
SECTION 306.
DURATION.
(a) A statutory trust has perpetual
existence.
(b) A statutory trust, or any series
thereof, may not be terminated or revoked except in accordance with this [act]
or the terms of the governing instrument.
(c) The death, incapacity,
dissolution, termination, or bankruptcy of a beneficial owner or trustee does
not result in the termination or dissolution of a statutory trust or any series
thereof.
(d) A statutory trust or any series
thereof does not terminate because the same person is the sole trustee and sole
beneficial owner.
Comment
Principal
Sources – Delaware Statutory Trust Act §3808; Connecticut Statutory Trust
Act §34-518.
Paragraph (a) provides a default
rule of perpetual existence for a statutory trust. See also Section 801 and Section 806. The duration of a common-law trust, by
contrast, is curtailed by the Rule Against Perpetuities. See Restatement
(Third) of Trusts §29, cmt. h(1) (2003); Restatement (Second) of Property:
Donative Transfers §2.1 (1981). Accordingly, unless the governing instrument provides otherwise, under
this section a statutory trust is exempt from the Rule Against Perpetuities. Without taking a position on the policy
soundness of the tax-driven movement to abolish the Rule Against Perpetuities
with respect to donative trusts, see [citation
to come], the drafting committee
concluded that the dead-hand worries that underpin the Rule do not apply
to a statutory trust. Under Section 302,
a statutory trust may not have a predominantly donative purpose.
Paragraph (b) confirms that a
statutory trust may only be terminated in accordance with the terms of this act
or the governing instrument. Thus, paragraph (b) overrides the rules of common-law
trust termination that would otherwise be applicable to a statutory trust pursuant
to Section 105. Those rules are
concerned with mediating the tension between the donor’s intent and subsequent
contrary preferences of the beneficiaries, see Robert H. Sitkoff, An Agency
Costs Theory of Trust Law, 89 Cornell L. Rev. 621, 658-63 (2004), an issue that
is not applicable to a statutory trust because a statutory trust may not have a
predominantly donative purpose. Instead,
the drafting committee contemplated that the governing instrument would provide
for termination of the statutory trust or modification of the governing
instrument if such provisions are desirable.
Paragraph (c) confirms that the rule
of partnership law under which a partnership is dissolved upon the death or
incapacity of one of the partners does not apply to a statutory trust.
Paragraph (d) overrides the
application to a statutory trust under Section 105 of the common law rule of
merger whereby legal and equitable title to the trust property merge and the
trust terminates if the same person is the sole trustee and sole beneficiary.
See Restatement (Third) of Trusts §69 (2003); Restatement (Second) of Trusts
§341 (1959); Comment, The Doctrine of Merger as Applied to Commercial Trusts,
29 Yale L.J. 97 (1919).
SECTION 307.
POWER TO HOLD PROPERTY; TITLE TO TRUST PROPERTY. A statutory trust may hold or take title to
property in its own name, or in the name of a trustee in the trustee’s capacity
as trustee, whether in an active, passive, or custodial capacity.
Comment
Principal
Source – Delaware Statutory Trust Act §3801; Connecticut Statutory Trust Act §34-502a.
This Section implements the concept
that a statutory trust is an entity separate from its trustees and beneficial
owners by confirming that a statutory trust may transact in its own name. The property of a common-law trust, by
contrast, must be held in the name of the trustee as such.
However,
this Section also permits the statutory trust to take title to property in the
name of the trustee in the trustee’s capacity as such even though the trust can
hold property in its own name. The drafting committee reasoned that this
provision would be useful for a statutory trust that has dealings in a state
that has not provided for a statutory trust entity. Property ownership by a trustee in the
trustee’s capacity as such is familiar from the use of common-law trusts.
To
police the boundary of the trustee’s personal property and the property 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 Uniform Trust Code §810 (2000); Restatement (Third) of Trusts §84 (2007). The drafting committee contemplated that
under appropriate circumstances Section 505(b) would be read to require similar
conduct by a trustee of a statutory trust that takes title to property of the
statutory trust in the name of the trustee in the trustee’s capacity as such.
SECTION 308.
POWER TO SUE AND BE SUED.
(a) A
statutory trust may sue and be sued in its own name.
(b)
Except as otherwise provided in [Article] 4, property of a statutory trust held
in the name of the trust or by the trustee in the trustee’s capacity as trustee
is subject to attachment and execution to satisfy a debt, obligation, or other
liability of the trust.
Comment
Principal
Sources – Delaware Statutory Trust Act §§3803-3805; Connecticut Statutory
Trust Act §§34-518, 34-523; Uniform Limited Partnership Act §303 (2001).
Paragraph
(a) implements the concept that a statutory trust is an entity separate
from the trustee and beneficial owner by confirming that a statutory trust has
the power to sue and be sued in its own name.
Paragraph (b) addresses the
attachment and execution of a statutory trust’s property subject to the possibility
that the statutory trust has formed one or more series under Article 4.
SECTION 401.
STATUTORY TRUST HAVING SERIES.
(a) The governing instrument may
provide for the creation by the statutory trust of one or more series with
respect to specified property of the statutory trust if:
(1) records are
maintained for the series that reasonably identify the property of the series,
including by specific listing, category, type, quantity, or computational or
allocational formula or procedure, such as a percentage or share of any
property, or by any other method by which the identity of the property of the
series is objectively determinable; and
(2) notice that the
trust having one or more series is set forth in the certificate of trust as
required by Section 201(b)(4).
(b) A series of a statutory trust is
not an entity separate from the statutory trust.
(c) A series of a statutory trust
may have a separate purpose from the trust or any other series thereof if the
purpose of the series is lawful and not a predominantly donative purpose.
Comment
Principal
Sources – Delaware Statutory Trust Act §3806; Delaware Limited Liability
Company Act §18-215.
Paragraph
(a) of this section provides that a statutory trust may be organized with one
or more series, subject to two conditions: (1) records must be
maintained that reasonably identify the property of the series, and (2) notice
of the limitation on liabilities of a series must be set forth in the
certificate of trust.
The earmarking requirement of paragraph (a)(1) safeguards the separate
interests of the beneficial owners of each series by clarifying the boundaries
between the property and liabilities of each series. For similar reasons, the earmarking requirement
also protects third parties that deal with a series trust. Third parties are further protected by
paragraph (a)(2), which conditions limited liability across series on notice in
the certificate of trust that the trust might have one or more series.
[Comparison of asset partitioning series
to governance classes under Section 104(e)(5) to come.]
Paragraph (b) [discussion of non-entity status to come, including the point that this
provision makes explicit what is implicit in the Delaware act, and that entity
status for tax purposes is a separate question not addressed here (analogy is
to common law trust, which is not an entity under state trust law but is for
federal tax purposes)].
Paragraph (c) [discussion and cross-reference to Section 303 to come.]
The
organization of a master statutory trust with several series is particularly
common among statutory trusts that are registered as investment companies under
the Investment Company Act of 1940, as amended, 15 U.S.C. Sections 80a-1 et
seq. (the “1940 Act”). In such a case, any series of beneficial interests
established by the governing instrument of the trust is a series preferred in
distribution of property or payment of dividends over all other series with
respect to property specifically allocated to the series under Section 18 of
the Investment Company Act of 1940.
[To
come, discussion of Delaware Statutory Trust Act §3805(h): “Except to the
extent otherwise provided in the governing instrument of the statutory trust,
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 § 3804(a) of
this title.”]
Under
Section 103(f)(4), this Section is not subject to override by the governing
instrument.
SECTION 402.
LIABILITY OF SERIES TRUST.
(a) In a series trust:
(1) a debt, obligation,
or other liability incurred or otherwise existing with respect to the property
of a particular series is enforceable against the property of the series only,
and not against the property of the trust generally or any other series
thereof; and
(2) none of the debts,
obligations, or other liabilities incurred or otherwise existing with respect
to the trust generally or the property of any other series thereof is
enforceable against the property of the series;.
(b) The association, disassociation,
or reassociation of property of a statutory trust or a series thereof to or
with the trust or a series thereof, including by conversion or merger under
[Article] 7 is deemed to be a transfer between separate persons under [Uniform
Fraudulent Transfers Act or other state fraudulent transfer statute].
Comment
Principal
Sources – Delaware Statutory Trust Act §3804; Delaware Limited Liability
Company Act §18-215.
Paragraph (a) provides that if a
statutory trust creates one or more series under Section 401, the debts,
liabilities, and other obligations of a particular series are enforceable
against the property of that series only.
In such circumstances, the debts, liabilities, and other obligations of
the trust generally and any other series thereof are not enforceable against
the property of the series. [Discussion of the common creditor
problem and the idea of the trust as a separate bucket from each series to come.]
Paragraph (b) addresses [discussion to come; the basic idea is
that we don’t want to allow transfer of property from series A to series B,
thereby frustrating the creditors of series A, if the transfer will leave series
A insolvent or otherwise would have qualified as a fraudulent transfer if A and
B were separate entities].
Under
Section 103(f)(4), paragraph (b) of this Section is not subject to override by
the governing instrument.
SECTION 403.
DUTIES OF TRUSTEE IN SERIES TRUST. If there is at least one trustee of a series
trust that, in discharging its duties, is obligated to consider the interests
of the trust and all series thereof, the governing instrument may provide that
one or more other trustees, in discharging their duties, may consider only the
interests of the trust or one or more series thereof.
Comment
[Explanatory
comment]
Under Section 103(f)(4), this
Section is not subject to override by the governing instrument.
SECTION 404.
DISSOLUTION OF SERIES.
(a) A series of a series trust may
be dissolved or its property distributed without causing the dissolution of the
trust or any other series thereof.
(b) A series of a series trust is
dissolved, and its activities must be wound up, on the occurrence of an event
or circumstance that the governing instrument states causes dissolution of the
series or upon the dissolution of the trust.
(c) On dissolution of a series of a
series trust, the persons that under the governing instrument are responsible
for winding up the affairs of the series may cause the trust to take all
actions permitted under Section 803, and shall take actions with respect to the
claims and obligations of the series as provided in Sections 803 through 805.
(d) Any person, including a trustee,
that under the governing instrument is responsible for winding up the affairs
of a series of a series trust is not liable to the creditors of the dissolved
series by reason of the person’s actions in winding up the series.
Comment
Principal Source – Delaware
Statutory Trust Act §3808; Revised Uniform Limited Liability Company Act
§§701-02 (2006).
[Comment
to explain that series dissolves as if it were a trust, and default/mandatory
treatment, to come.]
Under Section 103(f)(4), paragraph
(c) of this Section is not subject to override by the governing instrument.
SECTION 501.
MANAGEMENT OF STATUTORY TRUST. The business and affairs of a statutory trust
must be managed by or under the authority of its trustees.
Comment
Principal
Sources – Delaware Statutory Trust Act §3806; Connecticut Statutory Trust
Act §34-517; Uniform Limited Partnership Act §105 (2001); Delaware General
Corporation Law §141; Revised Model Business Corporation Act §8.01 (2005).
Section 102(19) defines the term “trustee”
as a person designated as such in accordance with the governing instrument or
applicable law. Section 104(e)(6)(C)
confirms that the governing instrument may provide for trustee
appointment. However, because no
provision in this Act provides default rules for trustee appointment, if the
governing instrument does not provide for trustee appointment, then under
Section 105 the state’s law pertaining to trustee appointment in common-law
trusts controls.
For treatment of the default rules
of trustee appointment, removal, and succession in common-law trusts, see
Uniform Trust Code §§701-02, 704-06 (2000); Restatement (Third) of Trusts
§§31-37 (2003). [Scott and Ascher on Trusts citation to come.]
SECTION 502.
TRUSTEE POWERS. A trustee may
exercise:
(1) powers conferred by the
governing instrument;
(2) except as limited by the
governing instrument, any other powers necessary or convenient to carry out the
business and affairs of the statutory trust; and
(3) any other powers conferred by
this [act].
Comment
Principal
Source –Uniform Trust Code §815 (2000).
This section is intended to grant
trustees the broadest possible powers. Hence, this section overrides the
application to a statutory trust under Section 105 of the outmoded common-law
rule that a trustee has only those powers granted by the trust instrument. See Uniform Trust Code §815 (2000);
Restatement (Third) of Trusts §85, cmt. a (2007).
However, the existence of a power
does not answer the question whether the exercise or nonexercise of that power
in a particular case is consistent with the trustee’s fiduciary obligation. The trustee’s exercise or nonexercise of the
broad powers conferred by this section is subject to scrutiny for compliance
with the trustee’s standard of conduct under Section 505. See UTC
§815, cmt. (2000); Restatement (Third)
of Trusts §§70, 86 (2007); John H. Langbein, The Contractarian Basis of the Law of Trusts, 105 Yale L.J. 625, 640-43
(1995).
SECTION 503.
ACTION BY TRUSTEES. On any matter
that is to be acted on by trustees, the following rules apply:
(1)
The trustees act by majority of the trustees.
(2)
The trustees may act without a meeting, without previous notice, and without a
vote, if the minimum number of trustees necessary to authorize or take the
action at a meeting at which all trustees entitled to vote thereon were present
and voted consent in a signed record.
However, prompt notice of the action must be given to those trustees
that did not consent.
(3) A
trustee may vote in person or by proxy, but, if by proxy, the proxy must be in
a signed record.
Comment
Principal
Sources – Delaware Statutory Trust Act §3806; Connecticut Statutory Trust
Act § 34-517; Delaware General Corporation law §228; Uniform Trust Code §703
(2000).
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 of the trustees.
The remainder of this section allows
for maximum flexibility in the mechanics of allowing the trustees to act or
vote on actions. Section 103(e)(4)
confirms that the rules stated in this Section are subject to override by the
governing instrument.
The Investment Company Act of 1940
requires a mutual fund’s investment advisory contract, underwriting contract,
fidelity bond, independent public accountants, and other such matters to be
approved by the trustees of the mutual fund.
See 15 U.S.C. § 80a-15(a); 15 U.S.C. 80a-31(a); 17 C.F.R. §
270.17g-1. Investment advisory and
underwriting contracts, and selection of independent public accountants, must
be approved by the noninterested trustees at an in-person meeting. See 15 U.S.C. §80a-15(c); 15 U.S.C.
80a-31(a).
SECTION
504. PROTECTION OF PERSON DEALING WITH
TRUSTEE.
(a) A person that in good faith assists a trustee, or in
good faith and for value deals with a trustee, without knowledge that the
trustee is exceeding or improperly exercising the trustee’s power, is protected
from liability as if the trustee properly exercised the power.
(b)
A person that in good faith deals with a trustee need not inquire into
the extent of a trustee’s power or the propriety of its exercise.
(c)
A person that in good faith delivers property to a trustee need not
ensure its proper use.
(d)
A person that in good faith assists a former trustee as if the former
trustee were still a trustee, or in good faith and for value deals with a
former trustee as if the former trustee were still a trustee, without knowledge
that the trusteeship has terminated is protected from liability as if the
former trustee were still a trustee.
Comment
Principal Source – Uniform Trust Code
§1012 (2000).
Paragraph (a) protects two different classes of persons:
(1) a person that assists a trustee with a transaction, and (2) a person that deals
with the trustee for value. As long as
the assistance was provided or the transaction was entered into in good faith
and without knowledge that the trustee was exceeding or improperly exercising
the trustee’s powers, the person is protected in the transaction.
Paragraph (b) confirms that a person that is acting in
good faith is not charged with a duty to inquire into the extent of a trustee’s
power or the propriety of its exercise.
The person may assume that the trustee has the necessary power. Paragraph (b) therefore overrides the
application to a statutory trust under Section 105 of the outmoded common-law
rule that a third party is charged with constructive notice of the trust
instrument and its contents. See Austin
Wakeman Scott, William F. Fratcher, and Mark L. Ascher, 5 Scott and Ascher on
Trusts §29.2 (5th ed. 2008).
Paragraph (c) protects a person that in good faith
delivers property to a trustee. The
standard of protection in Restatement (Second) of Trusts §321 (1959) is phrased
differently, but the result is similar.
Under the Restatement, the person delivering property to a trustee is
liable if at the time of the delivery the person had notice that the trustee
was misapplying or intending to misapply the property.
Paragraph (d) extends the protections afforded by this section
to assistance provided to or dealings for value with a former trustee. The person is protected as if the former
trustee still held the office if the person acted in good faith.
[To come:
Discussion of differences with the UTC.]
For discussion of
the meaning of good faith, see the comment to Section 505.
SECTION 505.
STANDARDS OF CONDUCT FOR TRUSTEES.
(a)
Subject to Section 403, in exercising the powers of trusteeship, a
trustee shall act in good faith and in a manner the trustee reasonably believes
to be in the best interests of the statutory trust.
(b) A trustee shall discharge its
duties with the care that a person in a similar position would reasonably
believe appropriate under similar circumstances.
Comment
Principal
Source – Revised Model Business Corporation Act §8.30 (2005).
To police the exercise of the
trustee’s broad powers under Section 502, this section subjects the trustee to
fiduciary duties of loyalty and care akin to those of a corporate
director.
The drafting committee opted to
model the trustee’s duties on the corporate fiduciary obligation as stated in
Revised Model Business Corporation Act §8.30 (2005) rather than the more
restrictive trust law fiduciary obligation because the statutory trust is used
chiefly as a mode of business organization.
Unlike the trust law fiduciary obligation, which evolved in the context
of donative transfers, the corporate law fiduciary obligation evolved to serve
the needs of commercial actors. For a
statement of the duties of loyalty and prudence in trust law, see Restatement
(Third) of Trusts §§77-78 (2007). For a
comparison, see Robert H. Sitkoff, Trust Law, Corporate Law, and Capital Market
Efficiency, 28 J. Corp. L. 565, 572-82 (2003).
See also the sources cited in the Comment to Section 507.
[Discussion
of Cargill, Inc. v. JWH Special Circumstance LLC, 959 A.2d 1096 (Del.Ch. 2008),
and differences between the Delaware Act and this Section, to come.]
The drafting committee declined the
suggestion to define the term good faith on the ground that such a definition
necessarily would be over- and under-inclusive. Instead, the committee
contemplated that the term would be interpreted in light of its evolving
meaning in the business and trust law cases.
[Commentary
explaining rationale for the “subject to Section 403” language.]
Under Section 103(f)(5), the trustee’s
standards of conduct under this section are mandatory rules that are not
subject to override by the governing instrument. However, the governing instrument may prescribe
the standards by which good faith, best interests of the statutory trust, and care
that a person in a similar position would reasonably believe appropriate under
similar circumstances are determined provided that the standards are not
manifestly unreasonable.
Delaware Statutory Trust Act
§3806(c) provides that a trustee’s fiduciary duties “may be expanded or
restricted or eliminated by provisions in the governing instrument; provided,
that the governing instrument may not eliminate the implied contractual
covenant of good faith and fair dealing,” and §3806(e), which provides that a “governing
instrument may provide for the limitation or elimination of any and all
liabilities for ... breach of duties (including fiduciary duties) . . .;
provided, that a governing instrument 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.”
SECTION 506.
GOOD-FAITH RELIANCE. A trustee,
officer, employee, manager, or committee of a statutory trust, or other person
designated pursuant to Section 104(c)(8), is not liable to the trust or to a
beneficial owner for breach of any duty, including a fiduciary duty, to the
extent the breach results from good-faith reliance on:
(1) a term of the governing instrument;
(2) a record of the statutory trust;
or
(3) an opinion, report, or statement
of another person that the trustee reasonably believes is within the other
person’s professional or expert competence and is made or delivered to the
trustee, officer, employee, manager, or committee of a statutory trust or other
person designated pursuant to Section 103(e)(8).
Comment
Principal
Source – Uniform Trust Code §1006 (2000); Delaware Statutory Trust Act
§3806; Connecticut Statutory Trust Act §34-517.
A trustee, officer, employee,
manager, committee, or other such person or persons should be able to
administer a statutory trust with dispatch and without concern that a
reasonable reliance on (1) the terms of the governing instrument, (2) the
records of the statutory trust, or (3) the opinions of experts is
misplaced. This section protects a
person that so relies, but only to the extent the breach of trust resulted from
such reliance and only if the person’s reliance was in good faith. “Taking the advice of legal
counsel,” for example, “evidences prudence on the part of the trustee. Reliance on the advice of counsel, however,
is not a complete defense to an alleged breach of trust, because that would
reward a trustee who shopped for legal advice that would support the trustee’s
desired course of conduct or who otherwise acted unreasonably in procuring or
following legal advice. In seeking and
considering advice of counsel, the trustee has a duty to act with prudence. Thus, if a trustee has selected trust counsel
prudently and in good faith, and has relied on plausible advice on a matter
within counsel’s expertise, the trustee’s conduct is significantly probative of
prudence.” Restatement (Third) of Trusts
§77, cmt. b(2) (2007).
SECTION 507.
INTERESTED TRANSACTIONS.
(a)
In this section, “covered party” means a trustee, officer, employee, or manager
of a statutory trust, or a related person of a trustee, officer, employee, or
manager.
(b)
Subject to subsection (c), a covered party may lend money to, borrow money
from, act as a surety, guarantor, or endorser for, guarantee or assume one or
more obligations of, provide collateral for, or do other business with the
statutory trust and has the same rights and obligations with respect to those
matters as a person that is not a covered party.
(c) A
transaction described in subsection (b) is voidable by the statutory trust
unless the covered party shows that the transaction is fair to the trust.
Comment
Principal
Sources – Delaware Statutory Trust Act §3806; Delaware General Corporation
Law §144.
Consistent with the use of the term “best
interests” instead of “sole interest” in Section 505(a), this section abrogates
the no-further-inquiry rule of the common law of trusts, which renders a
self-dealing or conflicted transaction by the trustee voidable by the
beneficiaries even if the transaction is fair and in the best interests of the
trust and the beneficiaries. See
Restatement (Third) of Trusts §78 (2007); Restatement (Second) of Trusts §170
(1959); John H. Langbein, Questioning the Trust Law Duty of Loyalty: Sole
Interest or Best Interest?, 114 Yale L.J. 929 (2005); Melanie B. Leslie,
Trusting Trustees: Fiduciary Duties and the Limits of Default Rules, 94
Georgetown L.J. 67 (2005).
Instead, this section follows the
corporate model whereby an interested transaction is voidable by the statutory
trust unless the related party shows that the transaction is fair to the
trust. For discussion of the fairness
test as applied in corporate law, see Steven M. Bainbridge, Corporation Law and
Economics §7.2, at pp. 315-16 (2002), citing Marciano v. Nakash, 535 A.2d 400
(Del. 1987). [To come: Further
discussion, along with reference to ALI Principles of Corporate Governance.]
[To
come: Explanation for omitting this Section from 103(f), hence ratification and
related ideas may be addressed in the governing instrument. The point of this section is to override the
no-further-inquiry rule, not to validate all self-dealing transactions.]
The application of this section to a
statutory trust that is registered as an investment company is preempted by the
Investment Company Act of 1940, which generally prohibits a trustee, officer,
employee, manager, and their related persons from lending money to, borrowing
money from, and engaging in other transactions with the mutual fund without
exemptive relief from the Securities and Exchange Commission. See 15 U.S.C. §80a-17(a), (d).
SECTION 508.
TRUSTEE’S RIGHT TO INFORMATION. A trustee has
the right to receive information from a statutory trust or another trustee
relating to the affairs of the trust reasonably related to the trustee’s
discharge of the trustee’s duties as trustee. The trustee may enforce this
right by summary proceeding in the [appropriate court].
Comment
Under Section 103(f)(8), the trustee’s
right to information under this section is not subject to override by the
governing instrument. However, the
trustee’s right to information is limited to information “reasonably related to
the trustee’s discharge of the trustee’s duties as trustee,” and under Section 103(f)(8)
the governing instrument may prescribe the standards by which reasonably
related is determined provided that those standards are not manifestly
unreasonable.
By linking the trustee’s information
rights to the scope of the trustee’s duties as trustee, this section makes the trustee’s
right to information function specific. This
section therefore allows for the creation of a limited-role or directed trustee
that will not have access to confidential information unrelated to the trustee’s
limited role. At the same time, this
section ensures that such a trustee will have access to information reasonably
related to discharging the trustee’s duties in connection with the trustee’s
limited role.
Section 608 provides for a
beneficial owner’s right to information.
SECTION 509.
INDEMNIFICATION, ADVANCEMENT, AND EXONERATION.
(a) A statutory trust may indemnify
and hold harmless a trustee or beneficial owner or other person with respect to
any claim or demand on the person by reason of the person’s relationship with
the trust if the claim or demand does not arise from the person’s bad faith,
willful misconduct, or reckless indifference.
(b) Expenses, including reasonable
attorney’s fees and costs, incurred by a trustee, beneficial owner, or any
other person in connection with a claim or demand on the person by reason of
the person’s relationship to a statutory trust may be paid by the trust before
the final disposition of the claim or demand, upon an undertaking by or on
behalf of the person to repay the trust if the person is ultimately determined
not to be entitled to be indemnified under subsection (a).
(c) A term in the governing
instrument relieving or exonerating a trustee from liability is unenforceable
to the extent that it relieves or exonerates the trustee from liability for
conduct involving bad faith, willful misconduct, or reckless indifference.
Comment
Principal
Sources – Delaware Statutory Trust Act §3817; Connecticut Statutory Trust
Act §34-524; Delaware General Corporation Law §145; Uniform Trust Code §§105,
1008 (2000).
This Section confirms that the
governing instrument may provide for indemnification, advancement, or
exoneration, and it states limitations on any such provisions. This Section
does not, by itself, compel indemnification, advancement, or exoneration. Under
Section 103(f)(8), this section’s prohibition against indemnification,
advancement, or exoneration for conduct involving bad faith, willful
misconduct, or reckless indifference is not subject to override by the
governing instrument. Prohibiting
indemnification, advancement, or exoneration for such conduct is consistent
with traditional trust doctrine. See Uniform Trust Code §1008 (2000); Restatement
(Third) of Trusts §96, cmt. d (T.D. No. 5, 2009); 4 Austin Wakeman Scott,
William Franklin Fratcher, and Mark L. Ascher, Scott and Ascher on Trusts
§24.27.3 (5th ed. 2007).
The Delaware Statutory Trust Act
likewise limits the permissible scope of exoneration. See Delaware Statutory Trust Act §3806(e),
which provides that the “governing instrument may provide for the limitation or
elimination of any and all liabilities for breach of contract and breach of
duty (including fiduciary duties) of a trustee . . . ; provided, that the
governing instrument may not eliminate the implied contractual covenant of good
faith and fair dealing.”
In Nakahara v. The NS 1991 American
Trust, 739 A.2d 770 (Del. Ch. 1998), the Delaware Chancery Court held that a
Delaware statutory trust had the power to advance litigation expenses, but
denied the trustees’ request for indemnification on the ground of unclean
hands.
Limitations on permissible
exoneration are also familiar corporate and alternative entity law. See, e.g., Delaware General Corporation Law
§102(b)(7); Delaware Limited Liability Company Act §18-1101; [to come: Citation to MBCA 2.02(b)(4)
and/or other uniform acts].
Any indemnification provision in the
governing instrument of a statutory trust that operates as a mutual fund is
subject to Section 17(h) of the Investment Company Act of 1940, which generally
prohibits a fund from including in its organizational documents any provision
that protects a trustee or officer of a fund against liability to the fund or
its shareholders by reason of “willful misfeasance, bad faith, gross
negligence, or reckless disregard” of the person’s duties as trustee or
officer. 15 U.S.C. § 80a-17(h).
The SEC has taken the position that,
before advancing legal fees to a trustee of a mutual fund, the fund’s “board
must either (1) obtain assurances, such as by obtaining insurance or receiving
collateral provided by the [trustee], that the advance will be repaid if the
trustee is found to have engaged in disabling conduct, or (2) have a reasonable
belief that the [trustee] has not engaged in disabling conduct and ultimately
will be entitled to indemnification.”
SEC Interpretation: Matters
Concerning Independent Directors of Investment Companies, Investment Company
Act Rel. No. 24083 (Oct. 14, 1999), 1999 WL 820629, *10. The SEC has also taken the position that
there is a rebuttable presumption that an independent trustee (see Section 512)
has not engaged in disabling conduct.
Id.
SECTION
510. DIRECTION OF TRUSTEES.
(a) The governing instrument may
authorize any person, including a beneficial owner, to direct a trustee or
other person in the management of a statutory trust.
(b) The governing instrument may
provide that neither the power to direct a trustee or other person nor the exercise
of the power by any person, including a beneficial owner, causes the person to
be a trustee or imposes on the person duties, including fiduciary duties, or
liabilities relating to these duties, to a statutory trust or beneficial owner.
(c) If the governing instrument
confers on a person a power to direct actions by a trustee or other person, the
trustee or other person shall act in accordance with an exercise of the power,
unless the direction is manifestly contrary to the terms of the governing instrument
or the trustee knows or has reason to know that following the direction would
constitute a serious breach of fiduciary duty by the trustee.
Comment
Principal
Sources – Delaware Statutory Trust Act §3806; Connecticut Statutory Trust
Act §34-517; Uniform Trust Code §808 (2000).
Paragraph (a) ratifies the use of a
directed trustee, meaning a trustee that must act in accordance with the
directions of another person. Under
paragraph (b), however, the trustee must not follow a direction that is manifestly
contrary to the terms of the governing instrument or that the trustee knows or
has reason to know would constitute a serious breach of fiduciary duty. For discussion, see Restatement (Third) of
Trusts §75 (2007); Mary Clarke and Diana S.C. Zeydel, Directed Trusts: The
Statutory Approaches to Authority and Liability, 35 Est. Plan. 14 (2008); Richard
W. Nenno, Directed Trusts: Can Directed Trustees Limit Their Liability?, 21 Prob.
and Prop. 45 (Nov./Dec. 2007).
Paragraph (b) confirms that the
governing instrument may provide that a person that has the power to direct the
trustee is not a trustee and owes no duties, fiduciary or otherwise, to the
statutory trust or a beneficial owner.
The reference in paragraph (c) to “serious”
breach of fiduciary duty is designed to exclude an inconsequential, immaterial,
or technical breach that does not harm a beneficial owner. For some purposes, such as trustee removal, trust
law distinguishes between “serious” and not serious breaches of trust. See Uniform Trust Code §706(b)(1) (2000); 2
Scott and Ascher on Trusts, supra, §11.10, at 661; Restatement (Second) of
Trusts §107, cmt. b (1959).
The trustee’s determination whether
a direction is “manifestly contrary to the terms of the governing instrument”
or “would constitute a serious breach of fiduciary duty by the trustee” is
subject to the trustee’s fiduciary obligations.
The drafting committee contemplated that, in accord with conventional
trust practice, a trustee could seek judicial resolution of whether an
instruction falls within the exclusion of paragraph (b) by applying to the
appropriate court for instructions. See
Restatement (Third) of Trusts §71 (2007).
Under Section 103(f)(9), the
obligation of a trustee not to follow a direction that is manifestly contrary
to the terms of the governing instrument or that would constitute a serious
breach of trust is not subject to override by the governing instrument.
In conjunction with Section 511,
this section facilitates the current practice in existing statutory trusts of
creating a limited purpose trustee — for example in a securitization
transaction with a person who is responsible for distribution computations or whose
consent is required before the statutory trust can petition for bankruptcy.
SECTION 511.
DELEGATION BY TRUSTEE.
(a)
A trustee may delegate duties and powers. The trustee shall exercise the care a person
in a similar position would reasonably believe appropriate under similar
circumstances in:
(1) selecting an agent;
(2) establishing the
scope and terms of the delegation; and
(3) periodically
reviewing the agent’s actions in order to monitor the agent’s performance and
compliance with the terms of the delegation.
(b)
Subject to subsection (a), a trustee may delegate duties and powers to a
co-trustee.
(c)
In performing a delegated function, an agent of a trustee owes a duty to
the statutory trust to exercise reasonable care to comply with the terms of the
delegation.
(d)
A trustee that complies with subsection (a) is not liable to a
beneficial owner or to the statutory trust for an act or omission of the agent
of a trustee to which function was delegated.
(e)
An agent of a trustee submits to the jurisdiction of the courts of this
state by accepting a delegation of powers or duties from a trustee.
Comment
Principal
Sources – Delaware Statutory Trust Act §3806; Connecticut Statutory Trust
Act §34-517; Uniform Trust Code §807.
This section is intended to
facilitate delegation to specialists. To that end, it reverses the outmoded
common law rule against delegation by a trustee. In authorizing delegation, this section
follows the Delaware Statutory Trust Act and the modern trend with respect to common-law
trusts. Most states have abrogated the common law nondelegation rule with
legislation based on one or more of Uniform Trust Code §807 (2000); Uniform
Prudent Investor Act §9 (1994); Restatement (Third) of Trusts §80 (2007). See also John H. Langbein, Reversing the
Nondelegation Rule of Trust-Investment Law, 59 Mo. L. Rev. 105 (1994).
Paragraphs (a), (c), (d), and (e) are
patterned on UTC §807 (2000), which is derived from Uniform Prudent Investor
Act §9. This section deviates from prior
uniform acts, however, on the issue of delegation to a co-trustee. Following the Delaware Statutory Trust Act,
paragraph (b) treats delegation to a co-trustee in the same manner as
delegation to another person. Traditional
law, by contrast, disfavors delegation by one co-trustee to another. See Uniform Trust Code §703(e) (2000); Restatement
(Third) of Trusts §81, cmt. c(1) (2007).
The traditional rule is based on the assumption that, if the donor named
more than one trustee, the donor intended each to be a check on the
others. That policy does not fit
commercial statutory trust practice, in which limited purpose trustees are
common.
There is an intrinsic tension in
trust law between granting trustees broad powers that facilitate flexible and
efficient trust administration, on the one hand, and protecting trust
beneficiaries from the misuse of such powers on the other hand. Delegation,
which is a species of trustee power, raises the same tension. If the trustee
delegates effectively, the beneficiaries obtain the advantage of the agent’s
specialized skills or whatever other attributes induced the trustee to
delegate. But if the trustee delegates to a knave or an incompetent, the
delegation can work harm upon the beneficiaries.
This section is designed to strike
the appropriate balance between the advantages and the hazards of delegation. It authorizes delegation under the limitations
of paragraphs (a) and (c). Paragraph (a)
requires the trustee to exercise the care a person in a similar position would
reasonably believe appropriate under similar circumstances in selecting the
agent, in establishing the terms of the delegation, and in reviewing the agent’s
compliance with the terms of the delegation.
The
trustee’s duty of care in framing the terms of the delegation should protect
the beneficial owners against overbroad delegation. For example, a trustee
could not prudently agree to a delegation agreement containing an exculpation
clause that leaves the statutory trust without recourse against reckless action
or bad faith by the agent. Leaving the trust without a remedy for willful
wrongdoing is inconsistent with the trustee’s duty of care in formulating the
terms of the delegation.
Although
paragraph (d) exonerates the trustee from personal responsibility for the agent’s
conduct when the delegation satisfies the standards of paragraph (a), paragraph
(c) makes the agent responsible to the statutory trust. The beneficial owners
can, therefore, rely upon the trustee to enforce the terms of the delegation.
Mutual
funds often receive a common set of services from an organization that
specializes in operating mutual funds, which is typically the investment
adviser or an affiliate. The trustees monitor the service providers and the
Investment Company Act of 1940 requires the trustees to approve the contracts
with the adviser and distributor. See 15
U.S.C. § 80a-15.
SECTION 512. INDEPENDENT TRUSTEE IN REGISTERED INVESTMENT
COMPANY.
(a) In this section, “affiliated
person” and “interested person” have the meanings set forth in the Investment
Company Act of 1940, [as amended,] 15 U.S.C. Section 80a-1 et seq. [and any
regulations issued thereunder].
(b) If a statutory trust is
registered as an investment company under the Investment Company Act of 1940,
[as amended,] 15 U.S.C. Section 80a-1 et seq., [or any successor statute] [and
any regulations issued thereunder,] a trustee is an independent trustee for all
purposes under this [act] if the trustee is not an interested person of the
trust. The receipt of compensation both
for service as an independent trustee of the trust and for service as an
independent trustee of one or more other investment companies managed by a
single investment adviser or an affiliated person of an investment adviser,
does not affect the status of the trustee as an independent trustee under this
section.
Comment
Principal
Source – Delaware Statutory Trust Act §3801.
It is not uncommon
for a director of a mutual fund to serve on multiple mutual fund boards. This section addresses the question of
trustee independence in such circumstances, rejecting Strougo v. Scudder, Stevens and Clark, 964 F. Supp. 783
(S.D.N.Y. 1997) (applying Maryland law).
In Strougo the plaintiffs
claimed that directors serving on multiple boards within a mutual fund complex
became “interested” by virtue of their close financial relationship with the
investment advisor. The plaintiffs
brought a derivative suit against a fund’s investment advisor alleging
excessive fees. The plaintiffs did not,
however, make a demand on the directors prior to filing suit. The court excused the plaintiffs from the
demand requirement because the fund’s directors served on multiple boards
within the same fund complex, receiving “substantial remuneration,” and hence
were not independent from the adviser.
Id. at 793-95.
In 1998 the Maryland legislature
effectively overruled Strougo by
amending the Maryland corporate code to provide that directors who are not “interested
persons” under the Investment Company Act of 1940 also would be deemed
disinterested under Maryland law. See
Md. Code (Corporations and Associations) §2-405.3. A similar provision took effect in
Massachusetts in 1999, see Mass. Laws. 182, § 2B, and in Delaware in 2000, see
Delaware Statutory Trust Act §3801(h).
Almost all mutual funds are organized as Maryland corporations,
Massachusetts trusts, or Delaware statutory trusts. Consistent with the Maryland, Massachusetts,
and Delaware legislation, this section rejects Strougo by deeming a trustee to be independent if he or she is not
an interested person under the Investment Company Act of 1940, as amended.
SECTION 601.
BENEFICIAL INTEREST.
(a) A beneficial interest in a
statutory trust is freely transferable.
(b) A beneficial owner’s interest in
a statutory trust is personal property regardless of the nature of the property
of the trust.
(c) A beneficial owner’s interest is
not an interest in specific property of a statutory trust.
(d) A beneficial owner does not have
a preemptive right to subscribe to any additional issue of beneficial interests
or any other interest of a statutory trust.
Comment
Principal
Source – Delaware Statutory Trust Act §3805; Connecticut Statutory Trust
Act §34-516; Revised Uniform Limited Liability Company Act §404 (2006).
Paragraph (a) provides as a default
rule that a beneficial owner’s interest in the statutory trust is freely
transferable. This paragraph therefore overrides the rule in
some states, which would otherwise be applicable to a statutory trust under
Section 105, that makes a common-law trust spendthrift by default. See Jeffrey A. Schoenblum, 2009 Multistate
Guide to Estate Planning Table 9.05, Part 1, Column 2 (collecting authority). However, because the rule stated in paragraph
(a) is not scheduled in Section 103(f), it is subject to override by the
governing instrument. Section
104(e)(2) confirms that the governing instrument may limit a beneficial owner’s
right to transfer its beneficial interest.
Section 606 provides for a charging order against a beneficial owner’s
rights to distributions in the event that the beneficial owner’s beneficial
interest is not freely transferable.
SECTION 602.
VOTING OR CONSENT BY BENEFICIAL OWNERS. On any matter
that is to be acted on by beneficial owners, the following rules apply:
(1)
The beneficial owners act by majority of the beneficial owners.
(2)
The beneficial owners may take the action without a meeting, without notice,
and without a vote, if beneficial owners having at least the minimum number of
votes necessary to authorize or take the action at a meeting at which all
beneficial owners entitled to vote thereon were present and voted consent in a
signed record. However, prompt notice of
the action must be given to those beneficial owners that did not consent.
(3) A
beneficial owner may vote in person or by proxy, but if by proxy, the proxy
must be contained in a signed record.
Comment
Principal
Source – Delaware Statutory Trust Act §3806; Delaware General Corporation
Law §228.
Except for a conversion, merger, or
dissolution under Articles 7 and 8, nothing in this act provides for the
beneficial owners to act on any matter.
However, because the beneficial owners may be given such a right by the
terms of the governing instrument, paragraph (a) supplies a default rule
requiring a majority of the number of beneficial owners. The drafting committee contemplated that the
governing instrument typically will address voting rules by providing a per
capital or other share-based allocation of voting rights. However, the drafting committee declined the
suggestion to try to incorporate such a rule as a default. Such rules are necessarily
transaction-specific and hence infeasible to specify in a one-size-fits-all
default. Compare Revised Uniform
Partnership Act §401(f) (1997), which provides that “[e]ach partner has equal
rights in the management and conduct of the partnership business.”
The Investment Company Act of 1940,
as amended, specifies the percentage of vote necessary to approve certain
actions related to the investment company.
In other instances, 1940 Act requires the action to be approved at a
shareholders’ meeting called for that purpose.
In such instances, approval of the action by written consent without
notice would not be valid. For example,
Section 16(a) of the 1940 Act provides that “no person shall serve as a
director of an investment company unless elected to that office by the holders
of the outstanding voting securities of such company, at an annual or a special
meeting duly called for that purpose.”
In addition, investment companies seeking the vote of shareholders on
specific actions must comply with rules governing the communication to, and
solicitation of, their shareholders. See
Rules 14a-1 to 14b-2 under the Securities Exchange Act of 1934, as
amended. These rules are significantly
more comprehensive than most state statutes and rules governing communications
to shareholders and other aspects of a shareholder meeting.
Section 104(c)(4) confirms that
the rules stated in this Section are subject to override by the governing
instrument.
SECTION 603.
CONTRIBUTION BY BENEFICIAL OWNER.
(a) A contribution of a beneficial
owner to a statutory trust may be in cash, property, or services rendered or a
promissory note or other obligation to contribute cash or property or to
perform services. A person may become a
beneficial owner of a statutory trust and may receive a beneficial interest in
a statutory trust without making a contribution or being obligated to make a
contribution to the trust.
(b) A beneficial owner is liable to
the statutory trust for failure to perform a 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 cash, property, or services, the beneficial owner is
obligated, at the option of the trust, to contribute cash equal to that part of
the value of the contribution that has not been made. This obligation is in addition to any other
right, including the right to specific performance, that the trust has against
the beneficial owner under the governing instrument or applicable law.
(c) The governing instrument may
provide that a beneficial owner that fails to make a required contribution or
comply with the terms and conditions of, the governing instrument is subject to
specified penalties for or consequences of the failure, including:
(1) reduction or
elimination of the defaulting beneficial owner’s proportionate interest in the
statutory trust or series thereof;
(2) subordination of the
defaulting beneficial owner’s beneficial interest to that of nondefaulting
beneficial owners;
(3) forced sale or
forfeiture of the defaulting beneficial owner’s beneficial interest;
(4) imposition of an
obligation to repay a loan to the statutory trust by another beneficial owner
of the amount necessary to meet the defaulting beneficial owner’s commitment;
and
(5) redemption or sale
of the defaulting beneficial owner’s beneficial interest at a value fixed by
appraisal or by formula.
Comment
Principal
Sources – Delaware Statutory Trust Act §3802; Connecticut Statutory Trust
Act §34-515.
Although statutory trusts are used primarily
as a mode of business organization in commercial transactions, paragraph (a)
acknowledges that a beneficial owner may obtain a beneficial interest without
an exchange of consideration, an event that is not uncommon in existing
commercial practice. However, a
statutory trust may not be used to effect a donative transfer because Section 302
prohibits a statutory trust from having a “predominantly donative purpose.”
Paragraph (c) repudiates the
hostility of traditional law to penalties, thereby resolving the doubts that
arose prior to statutory confirmation about the validity of particular remedies
for a beneficial owner’s breach.
Section 104(e)(1) confirms that the
governing instrument may provide the means by which beneficial ownership is
determined and evidenced. Section 104(e)(12) confirms that the governing
instrument may specify the conditions under which a person becomes a beneficial
owner.
SECTION 604.
DISTRIBUTION TO BENEFICIAL OWNER.
(a)
When a beneficial owner becomes entitled to receive a distribution, with
respect to the distribution, the beneficial owner has the status of, and is
entitled to all remedies available to, a creditor of the statutory trust.
(b) A
beneficial owner does not have a right to demand or to receive a distribution
from the trust in any form other than money.
(c)
The trust may distribute an asset in kind if each part of the asset is fungible
with each other part and each beneficial owner receives a percentage of the
asset equal in value to the beneficial owner’s share of the distribution.
Comment
Principal
Source – Delaware Statutory Trust Act §3805; Connecticut Statutory Trust
Act §34-516; Revised Uniform Limited Liability Company Act §404 (2006).
In the case
of a statutory trust that is a registered investment company organized as an
open-end mutual fund, a shareholder (beneficial owner) may request a
redemption of any or all of his shares (beneficial
interests) and the statutory trust is obligated to honor the redemption
request and pay the redemption proceeds within seven days (except under limited
circumstances such as an emergency). See 15 U.S.C. Sec.80(a)-22(e).
The redemption proceeds must be in the form of cash unless the open-end
mutual fund has filed with the Securities and Exchange Commission a
notification of election on Form N-18F-1. See 17 C.F.R. Sec.
270.18f-1. In such a case, the open-end mutual fund may pay
the redemption in-kind (i.e., pay assets of the fund
instead of cash) to a shareholder who during the
previous 90-day period has redeemed $250,000 or more of
shares or shares equal to one or more percent of the net asset
value of the fund. Id.
Section 104(e)(14) confirms that the
governing instrument may provide for the establishment of record dates for
distributions.
SECTION 605.
REDEMPTION OF BENEFICIAL INTEREST. A statutory trust may acquire, by purchase,
redemption, or otherwise, any beneficial interest in the trust or series
thereof. A beneficial interest so
acquired is canceled.
Comment
Principal
Source – Delaware Statutory Trust Act §3818.
A registered investment company
organized as an open-end mutual fund generally is obligated to honor redemption
requests by its shareholders at the net asset value per share next calculated
after receipt of the request, with payment to be made in cash (or, in some
cases, in kind) within seven days of the request. See 15 U.S.C. §80a-22(e);
17 CFR §270.22c-1. In narrowly defined circumstances, this redemption
right and obligation may be postponed. See
15 U.S.C. §80a-22(e). The redemption proceeds may be reduced by various
fees retained by the fund and/or its selling agent (i.e., sales loads and
redemption fees). See 17 CFR §§270.22c-2;
270.6c-10.
SECTION
606. CHARGING ORDER.
(a)
If a beneficial interest is not freely transferable by a beneficial owner so
that the transferee has all rights of the transferor, a judgment creditor of a
beneficial owner may satisfy the judgment against the beneficial owner’s
beneficial interest only as provided in this section.
(b)
On application by a judgment creditor of a beneficial owner, the [appropriate
court] may issue a charging order against the beneficial owner’s right to
distributions from the trust for the unsatisfied part of the judgment and:
(1)
appoint a receiver of the distributions subject to the charging order, with the
power to enforce the beneficial owner’s right to a distribution; and
(2)
make all other orders necessary to give effect to the charging order.
(c) A charging order issued under
subsection (b) constitutes a lien on the beneficial owner’s right to
distributions and requires the statutory trust to pay over to the judgment
creditor any distribution that would otherwise be paid to the beneficial owner
until the unsatisfied amount of the judgment has been satisfied.
(d) A
statutory trust or beneficial owner that is not subject to the charging order
may pay to the judgment creditor the full amount due under the judgment lien
and thereby succeed to the rights of the judgment creditor, including the
charging order.
(e)
This [act] does not deprive a beneficial owner or a transferee of the
beneficial interest of any exemption law applicable to the beneficial interest.
Comment
Principal
Source - Revised Uniform Limited
Liability Company Act §503 (2006).
[Commentary
to come.]
Under
Section 103(f)(10), the right of a judgment creditor of a beneficial owner to
seek a charging order may not be restricted by the governing instrument.
SECTION 607.
TRANSACTION WITH BENEFICIAL OWNER. A beneficial
owner or related person of a beneficial owner may lend money to, borrow money
from, act as a surety, guarantor, or endorser for, guarantee or assume an
obligation of, provide collateral for, or do other business with the statutory
trust and, subject to law other than this [act], has the same rights and
obligations with respect to a matter as a person that is not a beneficial
owner.
Comment
Principal
Source – Delaware Statutory Trust Act §3806.
SECTION
608. BENEFICIAL OWNER’S RIGHT TO
INFORMATION. A beneficial owner has the right to receive
information from the statutory trust or a trustee relating to the affairs of a
statutory trust reasonably related to the beneficial owner’s interest. The beneficial owner may enforce this right
by summary proceeding in the [appropriate court].
Comment
Principal
Source – Delaware Statutory Trust Act §3819; Delaware Limited Liability
Company Act §18-305.
Under Section 103(f)(11), a
beneficial owner’s right to information under this section is not subject to
override by the governing instrument.
However, a beneficial owner’s right to information under this section is
limited to information “reasonably related to the beneficial owner’s ability to
enforce its rights as a beneficial owner,” and under Section 103(f)(11) the
governing instrument may prescribe the standards by which reasonably related is
determined if those standards are not manifestly unreasonable.
Imposing a mandatory, minimum right
to information critical to the beneficiary’s ability to enforce the trust is
familiar law. Restatement (Third) of
Trusts §82, cmt. a(2) (2007), provides that “a beneficiary is always entitled ...
to request such information as is reasonably necessary to enable the
beneficiary to prevent or redress a breach of trust and otherwise to enforce
his or her rights under the trust.” See
also 3 Austin Wakeman Scott, William F.
Fratcher, and Mark L. Ascher, Scott and Ascher on Trusts §17.5, at 1202 (5th
ed. 2006); T.P. Gallanis, The Trustee’s Duty to Inform, 85 N.C. L. Rev.
1595 (2007).
The drafting committee declined the
suggestion to include in this section a schedule of accessible information on
the ground that such a rule-based schedule necessarily would be over- and under-inclusive. Instead, the committee contemplated that the
term “reasonably related” would provide a more robust and flexible right to
information by allowing the beneficiary to obtain a court order in a summary
proceeding for the release of any type of information that bears on enforcement
of the beneficial owner’s beneficial interest.
Section 508 provides for a trustee’s
right to information.
SECTION 609.
ACTION BY BENEFICIAL OWNER.
(a) A beneficial owner may maintain
a direct action against a statutory trust to redress an injury sustained by, or
to enforce a duty owed to, the beneficial owner if the beneficial owner can
prevail without showing an injury or breach of duty to the trust.
(b) A beneficial owner may maintain
a derivative action in the [appropriate court] to redress an injury sustained
by, or enforce a duty owed to, a statutory trust if:
(1) the beneficial owner
first makes a demand on the trustees, requesting that the trustees cause the
trust to bring an action to redress the injury or enforce the right, and the
trustees do not bring the action within a reasonable time; or
(2) a demand would be
futile.
(c) A derivative action on behalf of
a statutory trust may be maintained only by a person that is a beneficial owner
at the time the action is commenced and:
(1) was a beneficial
owner when the conduct giving rise to the action occurred; or
(2) 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.
(d) In a derivative action on behalf
of the statutory trust, the complaint must state with particularity:
(1) the date and content
of the plaintiff’s demand and the trustees’ response to the demand; or
(2) the reason the
demand should be excused as futile.
(e) Except as otherwise provided in
subsection (f):
(1) any proceeds or
other benefits of a derivative action on behalf of a statutory trust, whether
by judgment or settlement, are the property of the trust and not of the
plaintiff; and
(2) if the plaintiff
receives any proceeds, it shall immediately remit them to the trust.
(f) If a derivative action on behalf
of a statutory trust is successful in whole or in part, the court may award the
plaintiff reasonable expenses, including reasonable attorney’s fees and costs,
from the recovery by the trust.
(g) A derivative action on behalf of
a statutory trust may not be voluntarily dismissed or settled without the
court’s approval.
Comment
Principal
Sources - Uniform Limited Partnership Act §§1002-1005 (2001); ALI
Principles of Corporate Governance §7.01 (1994); Delaware Statutory Trust Act
§3816; Connecticut Statutory Trust Act §34-522.
Under Section 103(f)(12), the right
of a beneficial owner to bring an action under this Section may not be
eliminated by the governing instrument.
However, Section 103(f)(12) permits the governing instrument to subject
the right to additional standards and restrictions, including the requirement
that beneficial owners owning a specified amount or type of beneficial interest
join in bringing the action, provided that the additional standards and
restrictions are not manifestly unreasonable.
In preserving a mandatory right to
bring suit, but allowing that right to be subjected to additional standards and
restrictions that are not manifestly unreasonable, this section balances two policy
aims that are in tension. On the one hand, without the right to bring an action,
a beneficial owner might have no recourse in the event of trustee misconduct.
On the other hand, without appropriate safeguards, a meritless action might be
brought with the aim of extracting a quick settlement. See Reinier Kraakman, Hyun Park, and Steven Shavell, When
Are Shareholder Suits in Shareholder Interests?, 82 Georgetown L.J. 1733
(1994).
For a discussion of remedies, see
the comment to Section 105.
SECTION 701.
DEFINITIONS. In this
[article]:
(1)
“Constituent organization” means an organization that is party to a
merger.
(2)
“Constituent statutory trust” means a constituent organization that is a
statutory trust.
(3)
“Converted organization” means the organization into which a converting
organization converts pursuant to Sections 702 through 705.
(4)
“Converting organization” means an organization that converts into
another organization pursuant to Section 702.
(5)
“Converting statutory trust” means a converting organization that is a
statutory trust.
(6)
“Governing law” means the law that governs the organization’s internal
affairs.
(7)
“Organization” means a common-law trust that does not have a predominantly
donative purpose; general partnership, including a limited liability
partnership; limited partnership, including a limited liability limited
partnership; limited liability company; corporation; or foreign statutory
trust. The term includes a domestic or
foreign organization whether or not organized for profit.
(8)
“Organizational documents” means the basic records that create the
organization and determine its internal governance and the relations among the
persons that own it, have an interest in it, or are members of it.
(9)
“Surviving organization” means an organization into which one or more
other organizations are merged, whether the surviving organization preexisted
the merger or was created by the merger.
Comment
Principal
Source – Uniform Limited Partnership Act §1101 (2001).
This section contains definitions
specific to this Article.
Paragraph (7) includes a common-law
trust that does not have a predominantly donative purpose within the definition
of organization. Hence, such a common-law
trust may convert to or merge with a statutory trust under this Article if such
a conversion or merger is permitted by the trust’s governing law. Unlike the formation of a new statutory trust
by filing a certificate of trust under Section 201, an option expressly
afforded to a common-law trust under Section 1005, conversion or merger under
this Article preserves continuity in the organization’s relationships with
third parties. See Sections 705 and 709
and the comments thereto.
[Discussion/cross-reference
re exclusion of predominantly donative purpose to come].
Under Section 103(f)(13), this definitions
stated in this Section are not subject to override by the governing instrument.
SECTION 702.
CONVERSION.
(a)
An organization other than a statutory trust may convert to a statutory
trust, and a statutory trust may convert to another organization pursuant to
this section and Sections 703 through 705 and a plan of conversion, if:
(1) the conversion is
not prohibited by the governing law of the other organization; and
(2) the other
organization complies with its governing law in effecting the conversion.
(b)
A plan of conversion must be in a record and must include:
(1) the name and form of
the organization before conversion;
(2) the name and form of
the organization after conversion;
(3) the terms and
conditions of the conversion, including the manner and basis for converting
interests in the converting organization into any combination of money,
interests in the converted organization, and other consideration; and
(4) the organizational
documents of the converted organization.
Comment
Principal
Sources – Uniform Limited Partnership Act §1102 (2001).
In a statutory conversion an
existing organization changes its form, the jurisdiction of its governing law,
or both. For example, a statutory trust formed
under the laws of one jurisdiction might convert to a corporation, limited
liability company, or limited partnership under the laws of the same or another
jurisdiction (referred to in some statutes as “domestication”).
In contrast to a merger, which
involves at least two entities, a conversion involves only one. The converting and converted organization are
the same organization. See Section 705(a). For this Act to apply to a conversion, either
the converting or converted organization must be a statutory trust subject to
this Act.
A plan of conversion may provide
that some persons with interests in the converting organization will receive
interests in the converted organization while other persons with interests in
the converting organization will receive some other form of consideration. Thus, a “squeeze out” conversion is possible.
For a general discussion of conversion
and its effect, see Model Entity Transactions Act §406 (2006) and comment 1
thereto.
SECTION 703.
ACTION ON PLAN OF CONVERSION BY CONVERTING STATUTORY TRUST.
(a)
A plan of conversion must be consented to by all trustees and all
beneficial owners of a converting statutory trust.
(b)
A converting statutory trust may amend a plan of conversion or abandon
the planned conversion:
(1) as provided in the
plan; and
(2) except as prohibited
by the plan, by the same consent as was required to approve the plan.
Comment
Principal
Source – Uniform Limited Partnership Act §1103 (2001).
The requirement in paragraph (a) of
unanimous consent by all trustees and beneficiaries is a default rule that may
be overridden by the governing instrument.
See Section 103(e)(6)(B). Hence,
the governing instrument may state a different quantum of consent or provide a
different approval mechanism. Varying
this subsection’s rule means that a beneficial owner might be subject to a
conversion (including a “squeeze out” conversion) without consent and with no
appraisal remedy. If the converting
organization is a statutory trust subject to this Act, the trustee of the
converting organization is subject to the duties and obligations stated in this
Act. Those duties would apply to the
process and terms under which the conversion occurs. However, if the governing instrument allows
for a conversion with less than unanimous consent, the mere fact that a beneficial
owner objects to a conversion does not mean that a trustee that is favoring,
arranging, consenting to, or effecting the conversation has breached a duty
under this Act.
In the case of a statutory trust
that is a registered investment company organized as an open-end mutual fund, a
shareholder may elect to redeem any or all beneficial interests in the
statutory trust at the current net asset value per share, see 17 C.F.R.
§270.22c-1, which is a price that is akin to an appraisal value. Except for limited circumstances, a mutual
fund is required to pay proceeds to the redeeming shareholder within seven days
of the date of redemption request. See
15 U.S.C. §80a-22(e). Thus, a mutual fund generally does not afford
dissenting rights to its shareholders because any shareholder of a mutual
fund being converted may redeem fund shares at net asset value prior
to the closing date of the proposed conversion.
SECTION 704.
FILINGS REQUIRED FOR CONVERSION; EFFECTIVE DATE.
(a)
After a conversion is approved:
(1) a converting
statutory trust shall deliver to the [Secretary of State] for filing articles
of conversion, which must include:
(A) a
statement that the trust has been converted into another organization;
(B) the name
and form of the converting organization and the jurisdiction of its governing
law;
(C) a
statement that the conversion was approved as required by this [act];
(D) a
statement that the conversion is not prohibited by the governing law of the
converted organization; and
(E) if the
converted organization is a foreign organization not authorized to do business
in this state, the street and mailing address of an office that the [Secretary
of State] may use for the purposes of Section 705(c); and
(2) if the converting
organization is not a converting statutory trust, the converting organization
shall deliver to the [Secretary of State] for filing a certificate of trust,
which must include, in addition to the information required by Section 201:
(A) a
statement that the trust was converted from another organization;
(B) the name
and form of the converting organization and the jurisdiction of its governing
law; and
(C) a
statement that the conversion was approved in a manner that complied with the
organization’s governing law.
(b)
A conversion becomes effective when the certificate of conversion is
effective as provided in Section 204(c).
Comment
Principal
Source – Uniform Limited Partnership Act §1104 (2001).
Under paragraph (b) the effective
date of a conversion is determined under the governing law of the converted
organization.
Under Section 103(f)(13), this
Section is not subject to override by the governing instrument.
SECTION 705.
EFFECT OF CONVERSION.
(a)
An organization that has been converted pursuant to this [article] is
for all purposes the same organization that existed before the conversion.
(b)
When a conversion under this [article] takes effect:
(1) all property owned
by the converting organization remains vested in the converted organization;
(2) all debts,
obligations, and other liabilities of the converting organization, including
those existing with respect to the property of a series thereof, continue as
debts, obligations, or other liabilities of the converted organization limited
to the property of any series thereof as provided for by the plan of conversion
and the governing law of the successor organization;
(3) an action or
proceeding pending by or against the converting organization continues as if
the conversion had not occurred;
(4) except as prohibited
by law other than this [act], the rights, privileges, immunities, powers, and
purposes of the converting organization remain vested in the converted
organization;
(5) except as otherwise
provided in the plan of conversion, the terms and conditions of the plan of
conversion take effect; and
(6) except as otherwise
agreed, the conversion does not dissolve a converting statutory trust or any
series thereof for the purposes of Section 801.
(c)
A converted organization that is a foreign organization consents to the
jurisdiction of the courts of this state to enforce any debt, obligation, or
other liability for which the converting statutory trust is liable, if, before
the conversion, the converting statutory trust was subject to suit in this
state on the debt, obligation, or other liability. A converted organization that is a foreign
organization and not authorized to do business in this state may be served in
accordance with Section 212.
Comment
Principal Source – Uniform Limited
Partnership Act §1105 (2001).
Paragraph (a) confirms that
conversion changes an organization’s legal type, but does not create a new organization. Unlike a merger, a conversion involves a
single organization. Therefore under paragraph
(b) a conversion does not transfer any of the organization’s rights or
obligations. For further discussion, see
Model Entity Transactions Act §406 (2006) and comment 1 thereto.
Under Section 103(f)(13), this
Section is not subject to override by the governing instrument.
SECTION 706.
MERGER.
(a) A statutory trust may merge with
one or more other constituent organizations pursuant to this section and
Sections 707 through 709 and a plan of merger if:
(1) the merger is not
prohibited by the governing law of any constituent organization; and
(2) each of the other
organizations complies with its governing law in effecting the merger.
(b) A plan of merger must be in a
record and must include:
(1) the name and form of
each constituent organization;
(2) the name and form of
the surviving organization and, if the surviving organization is to be created
by the merger, a statement to that effect;
(3) the terms and
conditions of the merger, including the manner and basis for converting or
exchanging the interests in each constituent organization into any combination
of money, interests in the surviving organization, and other consideration;
(4) if the surviving
organization is to be created by the merger, the surviving organization’s
organizational documents; and
(5) if the surviving
organization is not to be created by the merger, any amendments to be made by
the merger to the surviving organization’s organizational documents.
Comment
Principal
Source – Uniform Limited Partnership Act §1106 (2001).
For this Act to apply to a merger,
at least one of the constituent organizations must be a statutory trust subject
to this Act.
A plan of merger may provide that
some persons with interests in a constituent organization will receive
interests in the surviving organization, while other persons with interests in
the same constituent organization will receive some other form of consideration. Thus, a “squeeze out” merger is
possible. As noted in the comment to
Section 703, the duties and obligations stated in this Act apply to a trustee
of a constituent organization that is a statutory trust subject to this Act. Those duties would apply to the process and
terms under which a “squeeze out” merger occurs.
SECTION 707.
ACTION ON PLAN OF MERGER BY CONSTITUENT STATUTORY TRUST.
(a) A plan of merger must be
consented to by all trustees and all beneficial owners of a constituent statutory
trust.
(b) After a merger is approved, and
at any time before a filing is made under Section 708, a constituent statutory
trust may amend the plan or abandon the planned merger:
(1) as provided in the
plan; and
(2) except as prohibited
by the plan, with the same consent as was required to approve the plan.
Comment
Principal
Sources – Uniform Limited Partnership Act §1107 (2001).
The requirement in paragraph (a) of
unanimous consent by all trustees and beneficiaries is a default rule that may
be overridden by the governing instrument.
See Section 104(e)(6)(B). Hence,
the governing instrument may state a different quantum of consent or provide a
completely different approval mechanism.
Varying this subsection’s rule means that a beneficial owner might be
subject to a merger (including a “squeeze out” merger) without consent and with
no appraisal remedy. The trustee of a
constituent statutory trust is subject to the duties and obligations stated in
this Act, and those duties would apply to the process and terms under which the
merger occurs. However, if the governing
instrument allows for a merger with less than unanimous consent, the mere fact
a beneficial owner objects to a merger does not mean that a trustee that is
favoring, arranging, consenting to, or effecting the merger has breached a duty
under this Act.
For the reasons discussed in the
comment to Section 703, a mutual fund generally does not afford dissenting
rights to its shareholders because any shareholder of an acquired mutual fund
may redeem acquired fund shares at net asset value prior to the closing
date of the proposed reorganization of the acquired fund.
SECTION 708.
FILINGS REQUIRED FOR MERGER; EFFECTIVE DATE.
(a) After each constituent
organization has approved a merger, articles of merger must be signed on behalf
of:
(1) each constituent
statutory trust, by one or more trustees or other authorized representative;
and
(2) each other
constituent organization, by an authorized representative.
(b) Articles of merger under this
section must include:
(1) the name and form of
each constituent organization and the jurisdiction of its governing law;
(2) the name and form of
the surviving organization, the jurisdiction of its governing law, and, if the
surviving organization is created by the merger, a statement to that effect;
(3) if the surviving
organization is to be created by the merger:
(A) if it
will be a statutory trust, the trust’s certificate of trust; or
(B) if it
will be an organization other than a statutory trust, the organizational
document that creates the organization;
(4) if the surviving
organization preexisted the merger, any amendments provided for in the plan of
merger for the organizational document that created the organization;
(5) a statement as to
each constituent organization that the merger was approved as required by the
organization’s governing law;
(6) if the surviving
organization is a foreign organization not authorized to do business in this
state, the street and mailing address of an office that the [Secretary of
State] may use for the purposes of Section 709(b); and
(7) any additional
information required by the governing law of any constituent organization.
(c) The articles of merger must be
delivered to the office of the [Secretary of State] for filing.
(d) A merger becomes effective under
this [article]:
(1) if the surviving
organization is a statutory trust, upon the later of:
(A) filing
of the articles of merger by the [Secretary of State]; or
(B) subject
to Section 204(c)(2), (3), or (4), as specified in the articles of merger; or
(2) if the surviving
organization is not a statutory trust, as provided by the governing law of the
surviving organization
Comment
Principal
Source – Uniform Limited Partnership Act §1108 (2001).
Under Section 103(f)(13), this
Section is not subject to override by the governing instrument.
SECTION
709. EFFECT OF MERGER.
(a) When a merger becomes effective:
(1) the surviving
organization continues or comes into existence;
(2) each constituent
organization that merges with the surviving organization ceases to exist as a
separate organization;
(3) all property owned
by each constituent organization that ceases to exist vests in the surviving
organization;
(4) all debts, obligations,
and other liabilities of each constituent organization that ceases to exist,
including those existing with respect to the property of a series thereof,
continue as debts, obligations, or other liabilities of the converted
organization limited to the property thereof as provided for by the plan of
merger and the governing law of the converted organization;
(5) an action or
proceeding pending by or against any constituent organization that ceases to
exist continues as if the merger had not occurred;
(6) except as prohibited
by law other than this [act], all rights, privileges, immunities, powers, and
purposes of each constituent organization that ceases to exist vest in the
surviving organization;
(7) except as otherwise
provided in the plan of merger, the terms and conditions of the plan of merger
take effect;
(8) if the surviving
organization is created by the merger and:
(A) if it is
a statutory trust, the certificate of trust becomes effective; or
(B) if it is
an organization other than a statutory trust, the organizational document that
creates the organization becomes effective; and
(9) if the surviving
organization preexisted the merger, any amendment provided for in the articles
of merger for the organizational document that created the organization becomes
effective.
(b) A surviving organization that is
a foreign organization consents to the jurisdiction of the courts of this state
to enforce any debt, obligation, or other liability owed by a constituent
organization if, before the merger, the constituent organization was subject to
suit in this state on the obligation. A
surviving organization that is a foreign organization not authorized to do
business in this state may be served in accordance with Section 212.
Comment
Principal
Source – Uniform Limited Partnership Act §1109 (2001).
Under Section 103(f)(13), this
Section is not subject to override by the governing instrument.
SECTION
710. [ARTICLE] NOT EXCLUSIVE. This [article] does not preclude an
organization from being converted or merged under law other than this [act].
Comment
Principal
Source – Uniform Limited Partnership Act §1113 (2001).
SECTION
801. EVENTS CAUSING DISSOLUTION. A statutory trust is dissolved only by an
administrative dissolution under Section 806 or by the filing of articles of
dissolution under Section 802:
(1) on the occurrence of an event or
circumstance that the governing instrument states causes dissolution; or
(2) with the approval of all the beneficial
owners.
Comment
Principal Source – Revised Uniform
Limited Liability Company Act §701 (2006).
This
Section provides that a statutory trust may be dissolved only by administrative
dissolution under Statute 806, or by the filing of articles of dissolution
under Section 802 upon either the occurrence of an event or circumstance stated
in the governing instrument or the unanimous consent of the beneficial owners.
However, as confirmed by Section 306, the governing instrument need not provide
for an event or circumstance that causes dissolution, or may provide that the
trust is not dissolved even with the consent of all the beneficial owners.
Under
Section 103(f)(14), the provisions of this section other than paragraph (2) are
not subject to override by the governing instrument.
SECTION
802. ARTICLES OF DISSOLUTION.
(a) If dissolution of a statutory
trust is authorized under Section 801, the trust shall deliver to the
[Secretary of State] for filing articles of dissolution setting forth:
(1) the name of the
trust; and
(2) the date of the
dissolution.
(b) Except as otherwise provided in
Section 204(c), a statutory trust is dissolved when articles of dissolution
that comply with subsection (a) are filed by the [Secretary of State].
Comment
Principal Source – Revised Model
Business Corporation Act §14.03 (2005).
SECTION 803. WINDING UP.
(a) A
dissolved statutory trust shall wind up its activities, and the trust and each
series thereof continues after dissolution only for the purpose of winding up.
(b)
In winding up its activities, a statutory trust shall:
(1)
discharge the trust’s debts, obligations, and other liabilities, settle and
close the trust’s activities, and marshal and distribute the property of the
trust; and
(2)
distribute any surplus property after complying with paragraph (1) to the
beneficial owners in proportion to their beneficial interests.
(c)
In winding up its activities, a statutory trust may:
(1)
preserve the trust’s activities and property as a going concern for a
reasonable time;
(2)
institute, maintain, and defend actions and proceedings, whether civil,
criminal, or administrative;
(3)
transfer the trust’s property;
(4)
settle disputes; and
(5)
perform other acts necessary or appropriate to the winding up.
(d)
Trustees of a dissolved statutory trust that has disposed of claims under
Sections 804 or 805 are not liable for breach of duty with respect to claims
against the trust that are barred or satisfied under Section 804 or 805.
(e)
The dissolution of a statutory trust does not terminate the authority of its
agent for service of process.
(f)
On application of any person that shows good cause, the [appropriate court] may
appoint a person to be a receiver for a dissolved statutory trust with the power
to undertake any action that might have been done by the trust during its
winding up if the action is necessary for final settlement of the trust.
Comment
Principal
Source – Revised Uniform Limited Liability Company Act §§702, 708 (2006); Revised
Model Business Corporation Act §14.09 (2005); Delaware Limited Liability
Company Act §18-805.
If the governing instrument of a
statutory trust provides for the dissolution of the trust, then upon the event
or circumstance that triggers dissolution, the statutory trust may continue
only for the purpose of winding up.
In winding up the statutory trust
within a reasonable time, the trustees are neither required to undertake a fire
sale of the property of the statutory trust on unfavorable terms nor permitted
to continue the trust endlessly under the guise of winding down. The question of what period of time is “reasonable”
under paragraph (c)(1) turns on the totality of the circumstances.
Paragraph
(e) provides for the possibility that after dissolution additional unfinished
business of the statutory trust is discovered. [Discussion of property that comes in after termination,
referencing Restatement (Third) of Trusts and Scott and Ascher on Trusts, to
come.]
Under
Section 103(f)(14), the provisions of this section are not subject to override
by the governing instrument.
SECTION
804. NOTICE TO CLAIMANT.
(a) Except as otherwise provided in
subsection (c), a dissolved statutory trust may dispose of a known claim
against it by notifying the claimant in a record of the dissolution of the
trust. The notice must:
(1) specify the
information required to be included in a claim;
(2) provide a mailing
address to which the claim is to be sent;
(3) state the deadline
for receipt of the claim, which may not be less than 120 days after the date
the notice is received by the claimant; and
(4) state that the claim
will be barred if not received by the deadline.
(b) A claim against a dissolved
statutory trust is barred if the requirements of subsection (a) are met and:
(1) the claim is not
received by the specified deadline; or
(2) if the claim is
timely received but rejected by the trust:
(A) the
trust notifies the claimant in a record that the claim is rejected and will be
barred unless the claimant commences an action against the trust to enforce the
claim by the 90th day after the claimant receives the notice; and
(B) the
claimant does not commence the required action by the 90th day.
(c) This section does not apply to a
claim based:
(1) on an event
occurring after the effective date of dissolution; or
(2) on a liability that
on that date is unmatured or contingent.
Comment
Principal
Source – Revised Uniform Limited Liability Company Act §703 (2006).
[Commentary
to come, drawing on the MBCA provision that is the ultimate source of these
provisions.]
Under Section 103(f)(14), the
provisions of this section are not subject to override by the governing
instrument.
SECTION
805. PUBLICATION OF NOTICE.
(a) A dissolved statutory trust may
publish notice of its dissolution and request persons having claims against the
trust to present them in accordance with the notice.
(b) A notice under subsection (a)
must:
(1) be published at
least once in a newspaper of general circulation in the [county] in this state
in which the dissolved statutory trust’s principal office is located or, if it
has none in this state, in the [county] in which the trust’s designated office
was last located;
(2) describe the
information required for a claim and provide a mailing address to which the
claim may be sent; and
(3) state that a claim
against the trust is barred unless an action to enforce the claim is commenced
not later than [three] years after publication of the notice.
(c) If a dissolved statutory trust
publishes a notice in accordance with subsection (b), unless the claimant
commences an action to enforce the claim against the trust not later than
[three] years after the publication date of the notice, the claim of each of
the following claimants is barred:
(1) a claimant that did
not receive notice in a record under Section 804;
(2) a claimant whose
claim was timely sent to the trust but not acted on; and
(3) a claimant whose
claim is contingent at, or based on an event occurring after, the effective
date of dissolution.
(d) A claim not barred under this
section may be enforced against undistributed property;.
(e) A claim not barred under this
section may be enforced if property of the trust has been distributed after
dissolution, against a beneficial owner to the extent of that beneficial
owner’s proportionate share of the property distributed to the beneficial owner
after dissolution. However, a beneficial
owner’s total liability for all claims under this subsection does not exceed
the total amount of property distributed to the beneficial owner after
dissolution.
Comment
Principal
Source – Revised Uniform Limited Liability Company Act §704 (2006).
[Commentary
to come, including treatment of the three year bracketed term, drawing on the
MBCA provision that is the ultimate source of these provisions.]
Under
Section 103(f)(14), the provisions of this section are not subject to override
by the governing instrument.
SECTION
806. ADMINISTRATIVE DISSOLUTION.
(a) The [Secretary of State] may
dissolve a statutory trust administratively if:
(1) the trust is without
an agent for service of process in this state for [30] days;
(2) the trust does not
file an annual report by the 60th day after it is due; or
(3) the trust does not
pay, by the 60th day after the due date, any fee, tax, or penalty due to the
[Secretary of State].
(b) If the [Secretary of State]
determines that a ground exists for administratively dissolving a statutory
trust, the [Secretary of State] shall file a notice of dissolution and send a
copy to the trust’s agent for service of process, or if the trust does not have
an agent for service of process in this state, to the trust’s designated
office. The notice must state:
(1) the effective date
of the dissolution, which must be at least [60] days after the date the
[Secretary of State] sends the copy; and
(2) the reason for the
dissolution.
(c) Unless a statutory trust cures
the failure to comply with subsection (a) stated in the notice of dissolution
before the date stated in the notice, the [Secretary of State] shall dissolve
the trust administratively by preparing, signing, and filing a declaration of
dissolution that states the grounds for dissolution. The [Secretary of State] shall file a notice
of dissolution and send a copy to the trust’s agent for service of process, or
if the trust does not have an agent for service of process in this state, to
the trust’s designated office.
Comment
Principal
Source – Revised Uniform Limited Liability Company Act §705 (2006).
Under Section 103(f)(14), the
provisions of this section are not subject to override by the governing
instrument.
SECTION
807. REINSTATEMENT FOLLOWING
ADMINISTRATIVE DISSOLUTION.
(a) A statutory trust that has been
dissolved administratively may apply to the [Secretary of State] for
reinstatement. The application must be
delivered to the [Secretary of State] for filing and state:
(1) the name of the
trust and the effective date of its dissolution;
(2) that the grounds for
dissolution did not exist or have been eliminated; and
(3) that the trust’s
name satisfies the requirements of Section 207.
(b) If the [Secretary of State]
determines that an application under subsection (a) contains the required
information and that the information is correct, the [Secretary of State] shall
prepare a declaration of reinstatement that states this determination, sign and
file the original of the declaration of reinstatement, and send a copy to the
trust’s agent for service of process.
(c) When a reinstatement becomes
effective, it relates back to and takes effect as of the effective date of the
administrative dissolution as if the dissolution had not occurred, except for
the rights of a person arising out of an act or omission in reliance on the dissolution
before the person knew or had reason to know of the reinstatement.
Comment
Principal
Source – Revised Uniform Limited Liability Company Act §706 (2006); Revised
Uniform Partnership Act §802 (1997).
Under Section 103(f)(14), the
provisions of this section are not subject to override by the governing
instrument.
SECTION
808. APPEAL FROM REJECTION OF
REINSTATEMENT.
(a) If the [Secretary of State]
rejects a statutory trust’s application for reinstatement following
administrative dissolution, the [Secretary of State] shall send a notice that
states the reason for rejection to the trust’s agent for service of process.
(b) A statutory trust may appeal
from the rejection by petitioning the [appropriate court] to set aside the
dissolution. The petition must be
delivered to the [Secretary of State] and contain a copy of the [Secretary of
State’s] declaration of dissolution, the trust’s application for reinstatement,
and the [Secretary of State’s] notice of rejection.
(c) The court may order the [Secretary
of State] to reinstate a dissolved statutory trust or take other action the
court considers appropriate.
Comment
Principal
Source – Revised Uniform Limited Liability Company Act §707 (2006).
Under Section 103(f)(14), the
provisions of this section are not subject to override by the governing
instrument.
SECTION 901.
GOVERNING LAW.
(a)
The law of the jurisdiction of formation of a foreign statutory trust governs:
(1)
the internal affairs of the trust;
(2)
the liability of a beneficial owner as beneficial owner and trustee as trustee
for the debts, obligations, or other liabilities of the trust or a series
thereof; and
(3)
the enforceability of a debt, obligation, or other liability of the foreign
statutory trust or any series thereof against the property of the trust or
series.
(b)
The [Secretary of State] may not deny a foreign statutory trust a certificate
of registration by reason of any difference between the law of the jurisdiction
of formation of the foreign statutory trust and the laws of this state.
(c) A
certificate of registration does not authorize a foreign statutory trust to
engage in any business or exercise any power that a statutory trust may not
engage in or exercise in this state.
Comment
Principal Sources – Revised
Uniform Limited Liability Company §801 (2006); Uniform Limited Partnership Act
§901 (2001); Delaware Statutory Trust Act §3851; Connecticut Statutory Trust
Act §34-530.
Paragraph
(a) parallels and is analogous in scope and effect to Section 301 for a
domestic statutory trust. 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.
[To come: Discussion of statutory trust
from a nonseries state.]
Under
Section 103(f)(15), this Section is not subject to override by the governing
instrument.
SECTION 902.
APPLICATION FOR CERTIFICATE OF REGISTRATION.
(a)
To register to do business in this state, a foreign statutory trust may apply
for a certificate of registration to transact business in this state by delivering
an application to the [Secretary of State] for filing. The application must contain:
(1)
the name of the trust and, if the name does not comply with Section 207, an
alternate name adopted pursuant to Section 906(a).
(2)
the name of the state or other jurisdiction of formation of the trust;
(3)
the street and mailing address of the trust’s principal office and, if the laws
of the jurisdiction of formation of the the trust require it to maintain an
office in that jurisdiction, the street and mailing address of the required
office; and
(4)
the name and street and mailing address of the trust’s initial agent for
service of process in this state.
(b) A
foreign statutory trust shall deliver with a completed application under
subsection (a) a certificate of good standing or a record of similar import
signed by the [Secretary of State] or other official having custody of the
foreign statutory trust’s publicly filed records in the state or other
jurisdiction of formation of the foreign statutory trust.
Comment
Principal Source – Uniform
Limited Partnership Act §902 (2001).
A
certificate of registration for a foreign statutory trust is akin to a
certificate of good standing for a statutory trust under Section 206. [Further commentary to come.]
Under
Section 103(f)(14), this Section is not subject to override by the governing
instrument.
SECTION 903.
ACTIVITIES NOT CONSTITUTING TRANSACTING BUSINESS.
(a)
Activities of a foreign statutory trust which do not constitute doing business
in this state within the meaning of this [article] include:
(1)
maintaining, defending, or settling an action or proceeding;
(2)
holding meetings of its trustees or carrying on any other activity concerning
its internal affairs;
(3)
maintaining accounts or depositing assets in financial institutions;
(4)
maintaining offices or agencies for the transfer, exchange, and registration of
the trust’s own beneficial interests or securities or maintaining trustees or
depositories with respect to those beneficial interests or securities;
(5)
selling through independent contractors;
(6)
soliciting or obtaining orders, whether by mail or electronic means or through
employees or agents or otherwise, if the orders require acceptance outside this
state before they become contractual obligations;
(7)
creating or acquiring indebtedness, mortgages, or security interests in real or
personal property;
(8)
securing or collecting debts or enforcing mortgages or other security interests
in property securing the debts, and holding, protecting, or maintaining
property so acquired;
(9)
conducting an isolated transaction that is completed by the 30th day and is not
in the course of similar transactions;
and
(10)
transacting business in interstate commerce.
(b)
This section does not apply in determining the contacts or activities that may
subject a foreign statutory trust to service of process, taxation, or
regulation under law of this state other than this [act].
(c) A
person does not do business in the state solely by reason of being a trustee or
a beneficial owner of a foreign statutory trust that does transact business in
this state.
Comment
Principal Sources – Uniform
Limited Partnership Act §903 (2001).
The
schedule of activities that in paragraph (a) that do not constitute transacting
business in the state are illustrative and not exhaustive. As revised in 2006, the Delaware Statutory
Trust Act contains a similar schedule.
See 2006 Delaware Laws Ch. 418 §20 (H.B. 445), adding Delaware Statutory
Trust Act §3863.
Under
Section 103(f)(14), this Section is not subject to override by the governing
instrument.
SECTION 904.
FILING OF CERTIFICATE OF REGISTRATION. Unless the
[Secretary of State] determines that an application for a certificate of
registration does not comply with the filing requirements of this [act], the
[Secretary of State], upon payment of all filing fees, shall file the
application, prepare, sign, and file a certificate of registration to transact
business in this state, and send a copy of the filed certificate, together with
a receipt for the fees, to the foreign statutory trust or its representative.
Comment
Principal Source –Uniform
Limited Partnership Act §904 (2001).
Under
Section 103(f)(14), this Section is not subject to override by the governing
instrument.
SECTION 905.
CERTIFIED COPY OF CERTIFICATE OF REGISTRATION.
(a)
The [Secretary of State], upon request and payment of the required fee, shall
furnish a certified copy of the certificate of registration for a qualified
foreign statutory trust if the records filed in the [office of the Secretary of
State] show that the [Secretary of State] has filed a certificate of
registration, has not revoked the certificate of registration, and has not
filed a notice of cancellation.
(b) Subject
to any limitation stated in the certificate, the certified copy of the
certificate of registration issued by the [Secretary of State] to a foreign
statutory trust may be relied upon as conclusive evidence that the trust is
authorized to transact business in this state as of the date of the
certificate.
Comment
Principal
Source – Uniform Limited Partnership Act §209 (2001).
[Comment to come.]
Under
Section 103(f)(14), this Section is not subject to override by the governing
instrument.
SECTION 906.
NONCOMPLYING NAME OF FOREIGN STATUTORY TRUST.
(a) A
foreign statutory trust whose name does not comply with Section 207 may not
obtain a certificate of registration until it adopts, for the purpose of
transacting business in this state, an alternate name that complies with
Section 207. A foreign statutory trust
that adopts an alternate name under this subsection and obtains a certificate
of registration with the name need not comply with [this state’s fictitious or
assumed name statute]. After obtaining a
certificate of registration with an alternate name, a foreign statutory trust
shall transact business in this state under the name unless the trust is
authorized under [this states’s fictitious or assumed name statute] to transact
business in this state under another name.
(b)
If a qualified foreign statutory trust changes its name to one that does not
comply with Section 207, it may not thereafter transact business in this state
until it complies with subsection (a) and obtains an amended certificate of
registration.
Comment
Principal Source – Uniform
Limited Partnership Act §905 (2001).
Under
Section 103(f)(14), this Section is not subject to override by the governing
instrument.
SECTION 907.
REVOCATION OF CERTIFICATE OF REGISTRATION.
(a)
The [Secretary of State] may revoke the certificate of registration of a
qualified foreign statutory trust if the trust does not:
(1)
appoint and maintain an agent for service of process;
(2)
deliver for filing a statement of change by the 60th day after a change has
occurred in the name or address of the agent;
(3)
file an annual report pursuant to Section 213 by the 60th day after it is due;
or
(4)
pay, by the 60th day after the due date, any fee, tax, or penalty due to the
[Secretary of State].
(b)
To revoke a certificate of registration of a foreign statutory trust, the
[Secretary of State] must prepare, sign, and file a notice of revocation and
send a copy to the trust’s agent for service of process in this state, or if
the trust does not appoint and maintain a agent for service of process in this
state, to the trust’s designated office.
The notice must state:
(1)
the effective date of the revocation, which must be at least [60] days after
the date the [Secretary of State] sends the copy; and
(2)
the basis for the revocation.
(c)
Unless a foreign statutory trust cures the failures to comply with subsection
(a) stated in the notice of revocation before the date stated in the notice,
the authority of the trust to transact business in this state ceases on that
date.
(d)
If a foreign statutory trust cures the failure stated in the notice of
revocation under subsection (b), the [Secretary of State] shall indicate that
the trust is reinstated on the filed notice.
The reinstatement of the trust relates back for all purposes to the date
of the notice of revocation, except for the rights of a person arising out of
an act or omission in reliance on the dissolution before the person knew or had
reason to know of the reinstatement.
Comment
Principal Source – Uniform
Limited Partnership Act §906 (2001).
Under
Section 103(f)(14), this Section is not subject to override by the governing
instrument.
SECTION 908.
CANCELLATION OF CERTIFICATE OF REGISTRATION.
(a)
To cancel its certificate of registration to transact business in this state, a
qualified foreign statutory trust must deliver to the [Secretary of State] for
filing a notice of cancellation that states:
(1)
the name of the trust;
(2)
the date of filing of its initial certificate of registration;
(3)
that the certificate of registration is being canceled; and
(4)
any other information as determined by the trustee filing the statement.
(b) A
certificate of registration under subsection (a) is canceled when the notice of
cancellation becomes effective under Section 204.
Comment
Principal Source – Uniform
Limited Partnership Act §907 (2001).
Under
Section 103(f)(14), this Section is not subject to override by the governing
instrument.
SECTION 909.
EFFECT OF FAILURE TO HAVE CERTIFICATE OF REGISTRATION.
(a) A
foreign statutory trust transacting business in this state may not maintain an
action or proceeding in this state unless it has a certificate of registration
to transact business in this state.
(b)
The failure of a foreign statutory trust to have a certificate of registration
to transact business in this state does not impair the validity of a contract
or act of the trust or prevent the trust from defending an action or proceeding
in this state.
(c) A
trustee or beneficial owner of a foreign statutory trust is not liable for the
debts, obligations, or other liabilities of the trust solely because the trust
transacted business in this state without a certificate of registration.
(d)
If a foreign statutory trust transacts business in this state without a
certificate of registration or cancels its certificate of registration, the
trust may be served in accordance with Section 212 for actions arising out of
the transaction of business in this state.
Comment
Principal Source – Uniform
Limited Partnership Act §907 (2001).
Under
Section 103(f)(14), this Section is not subject to override by the governing
instrument.
SECTION 910.
ACTION BY [ATTORNEY GENERAL]. The [Attorney
General] may maintain an action to enjoin a foreign statutory trust from
transacting business in this state in violation of this [article].
Comment
Principal Source – Uniform
Limited Partnership Act §908 (2001).
Under
Section 103(f)(14), this Section is not subject to override by the governing
instrument.
SECTION 1001.
UNIFORMITY OF APPLICATION AND CONSTRUCTION. In applying and construing this uniform act,
consideration must be given to the need to promote uniformity of the law with
respect to its subject matter among states that enact it.
Comment
Principal
Source – Uniform Limited Partnership Act §1201 (2001).
Under Section 103(f)(16), this
Section is not subject to override by the governing instrument.
SECTION 1002.
RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT. This [act] modifies, limits, and supersedes
the federal Electronic Signatures in Global and National Commerce Act, 15
U.S.C. Section 7001 et seq., but does
not modify, limit, or supersede Section 101(c) of that act, 15 U.S.C. Section
7001(c), or authorize electronic delivery of any of the notices described in
Section 103(b) of that act, 15 U.S.C. Section 7003(b).
Comment
Principal
Source – Uniform Limited Partnership Act §1203 (2001).
Under Section 103(f)(16), this
Section is not subject to override by the governing instrument.
SECTION 1003.
SAVING CLAUSE. This [act]
does not affect an action commenced, proceeding brought, or right accrued
before this [act] takes effect.
Comment
Principal
Source – Uniform Limited Partnership Act §1207 (2001).
Under Section 103(f)(16), this
Section is not subject to override by the governing instrument.
SECTION 1004.
RESERVATION OF POWER TO AMEND OR REPEAL. The [name of state legislature] has power to amend
or repeal all or part of this [act] at any time and all statutory trusts and
foreign statutory trusts subject to this [act] are governed by the amendment or
repeal.
Comment
Principal
Source – Revised Model Business Corporation Act §1.02 (2005).
This
paragraph address the concern that under the Constitution a subsequent
amendment to this act could not be applied to an existing statutory trust or
foreign statutory trust. The official comment to Revised Model Business
Corporation Act §1.02 (2005), on which this section is based, explains:
Provisions similar to section 1.02 have their genesis in Trustees of Dartmouth College v. Woodward, 17
U.S. (4 Wheat) 518 (1819), which held that the United States Constitution
prohibited the application of newly enacted statutes to existing corporations
while suggesting the efficacy of a reservation of power similar to section
1.02. The purpose of section 1.02 is to avoid any possible argument that a
corporation has contractual or vested rights in any specific statutory
provision and to ensure that the state may in the future modify its corporation
statutes as it deems appropriate and require existing corporations to comply
with the statutes as modified.
All articles of incorporation or certificates of authority granted
under the Model Act are subject to the reservation of power set forth in
section 1.02. Further, corporations ‘‘governed’’ by this Act—which includes all
corporations formed or qualified under earlier, general incorporation statutes
that contain a reservation of power—are also subject to the reservation of
power of section
1.02
and bound by subsequent amendments to the Act.
Many states have constitutional provisions mandating the
reservation of power to amend or modify corporate statutes and charters. In
these states section 1.02 is also supported by specific constitutional
authorization.
Under Section 103(f)(16), this
Section is not subject to override by the governing instrument.
SECTION 1005.
APPLICATION TO EXISTING RELATIONSHIPS.
(a) This [act] does not limit,
prohibit, or invalidate the existence, acts, or obligations of any common-law
trust created or doing business in this state before or after [the effective
date of the act]. The laws of this state
other than this [act] pertaining to trusts apply to common-law trusts.
(b) A common-law trust arising under
the law of this state before or after [the effective date of this [act]] that
does not have a predominantly donative purpose may elect to be governed by this
[act] by filing of a certificate of trust under Section 201.
[(c) A trust created pursuant to a
statute of this state that was required by that statute to file a certificate
of trust with [the Secretary of State] before [the effective date of this
[act]] may elect to be governed by the provisions of this [act] by filing an
amendment to its certificate of trust under Section 202.]
[(d) On [two years after the
effective date of this [act]], this [act] governs the organization and internal
affairs of all trusts created pursuant to a statute of this state that was
required by that statute to file a certificate of trust with the [Secretary of
State] before the effective date of this [act].]
Comment
Principal
Source – Uniform Limited Partnership Act §1206 (2001).
This Act governs all statutory
trusts formed on or after the Act’s effective date. For pre-existing statutory trusts, this
section establishes an optional “elect in” period and a mandatory,
all-inclusive date of two years following the effective date. Beginning on the all-inclusive date, each
pre-existing statutory trust that has not previously elected in becomes subject
to this Act—including the schedule of mandatory rules in Section 103(f)—by
operation of law.
Paragraphs (a) and (b) confirm that
this act does not govern a common-law trust unless the trust forms a statutory
trust by filing a certificate of trust under Section 201. However, consistent with Section 302, paragraph
(b) of this Section prohibits a common-law trust with a predominantly donative
purpose from becoming a statutory trust. An alternative mode for a common-law
trust to become a statutory trust is provided by the conversion provisions of Article
6. Unlike the formation of a new
statutory trust by filing a certificate of trust under Section 201, the
conversion provisions of Article 6 allow for the conversion of another
organization into the statutory trust form while preserving continuity in the
converting organization’s relationships with third parties. See the Comments to Sections 701 and 705.
The drafting committee contemplated
that some enacting jurisdictions might modify this section—particularly
paragraphs (c) and (d), which are bracketed to signal that uniformity is not
expected—to address other transition problems arising from differences between
this Act and prior law. For example, an
enacting jurisdiction might choose to allow trusts formed under a prior statute
to remain governed by the prior statute for longer than the two years suggested
in paragraph (d).
Under Section 103(f)(16), this
Section is not subject to override by the governing instrument.
SECTION 1006.
REPEALS. [On
[all-inclusive date], the] [The] following are repealed:
(1) [the state Statutory Trust Act
as amended and in effect immediately before [the effective date of this [act]];
(2) [the state Business Trust Act as
amended and in effect immediately before [the effective date of this [act]];
and
(3) [the state Real Estate
Investment Trust Act as amended and in effect immediately before [the effective
date of this [act]].
Comment
Principal
Sources – Uniform Limited Partnership Act §1205 (2001).
Paragraphs (1) and (2) supply model language for enacting jurisdictions
that have previously enacted a Statutory Trust Act or a Business Trust
Act.
Paragraph
(3) supplies model language for enacting jurisdictions that have previously
enacted a Real Estate Investment Trust statute.
A real estate investment trust, also known as a REIT, is not a type of
trust but rather is a tax status awarded to any entity that qualifies under 26
U.S.C. §§856 et seq., or that qualifies as a real estate mortgage investment
conduit under 26 U.S.C. §860D. Although
the Internal Revenue Code at one time favored the trust form for the
organization of a REIT, the code today does not regulate the form of entity. [Citation
to come.] Accordingly, there is no longer
any reason why a REIT must be organized as a trust, whether statutory or common
law. Indeed, data assembled by the
reporter shows that in contemporary practice most publicly-traded REITs are
organized as Maryland corporations, not as trusts. Nonetheless, prior to the
liberalization of the tax code, a number of states enacted REIT statutes that
authorize the creation of a trust entity designed to qualify as a REIT under
the code. Because a statutory trust
under this Act could serve the same purpose, the drafting committee
contemplated that enacting jurisdictions might take the occasion of enacting this
act to repeal their REIT statutes.
Under Section 103(f)(16), this
Section is not subject to override by the governing instrument.
SECTION 1007.
EFFECTIVE DATE. This [act]
takes effect . . . .
Comment
Principal
Source – Uniform Limited Partnership Act §1204 (2001).
Section 1005 specifies how this Act
affects statutory trusts, with special provisions pertaining to statutory
trusts formed before the Act’s effective date.
There are no comparable provisions for foreign statutory trusts. Therefore, once this Act is effective, it
applies immediately to all foreign statutory trusts, whether formed before or
after the Act’s effective date.
Under Section 103(f)(16), this
Section is not subject to override by the governing instrument.
