What Is a Declaration of Trust?

Millions of Americans work in small businesses.  Statistics show that small businesses employ almost half of the work force in the United States.  Many people decide to begin a new business every year, and with that decision comes many other important issues to consider.  Just one of these is how to structure your business.  Some common choices are Limited Partnerships or Limited Liability Corporations.  However, if you are considering starting a business, you also may want to consider a Declaration of Trust.

A Declaration of Trust, also called a business trust, can help you and your co-founders limit your personal liability for debts incurred by your business, including if your business is sued or goes bankrupt.  With a declaration of trust, you will file particular paperwork with the Minnesota Office of the Secretary of State.  If you decide to form your business with a declaration of trust, it cannot be a partnership, joint stock company, or an agency.

Like any other trust, there will need to be a trustee named.  The trustee will be responsible for conducting the association’s business.  Also like other trusts, there must be beneficiaries.  You and your co-founders may be named both the trustees and the beneficiaries of the business trust.  It is possible to set an end date for the trust, but if no end date is specifically selected, the business trust will continue in perpetuity.

The main advantage of filing a declaration of trust is that the trustees, beneficiaries, and the shareholders are exempt from personal liability.  The association itself can be named as a defendant in a lawsuit and can also bring lawsuits on behalf of the business. The trust can acquire assets and real estate.  When that happens, the trust is the one in possession of these assets.  The trust is also able to sell property, enter into contracts for leasing, or sell or mortgage any property in its possession.

A business formed this way can do business in Minnesota, but does not have to confine its activities to within the state borders.  It is also important to note that pursuant to Minnesota statute 318.05, no business trust may conduct any business without first complying with the requirements of forming and registering the business.  Failure to adhere to that requirement can result in serious liability, including missing out on the personal liability protection of the trustees and beneficiaries.

Call us today at (651) 371-9117 for a consultation.  We have extensive experience helping our clients to understand their options with business formation and can help you.

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