Take-Away: With the advent of the Corporate Transparency Act, many statutory business trusts will likely have to disclose their beneficial interest owners. In contrast, a common law business trust can and will continue to afford privacy to its owners and operators since it will not be a reporting company under the Act.

Background: Business trusts have been around for a long time, it is just that they have not gotten much attention in recent years. Recall that period in American history that was predominated by business trusts in the late 19th Century, with business trusts like Standard Oil, American Tobacco Company,  and United States Steel. It was the growth and domination of these gigantic business trusts before the turn of the century that led to the adoption of antitrust laws, exemplified by the Sherman Antitrust Act of 1890, and later led to the political rise of Teddy Roosevelt’s ‘trust busting’ reputation.

In recent years the business trust form of conducting business has predominated in the formation of mutual funds, pension funds, REITs, and asset securitization entities. Many index funds are now organized as a business trust.

Alternative to a Corporation: In the past, the use of a business trust was prompted when corporate law had been too restrictive and public. Even when more lax general incorporation statutes were passed by states in the 20th Century to make the act of incorporation less restrictive, business trusts continued an alternative to corporations because of restrictions placed on use of the corporate form under state law, which  includes the obligation to file with the State to form and maintain the corporation’s charter, leading to unwanted publicity as to the owners and operators of a corporation.

Common Characteristics: Business trusts are creatures of state law [statute or common], and as such they often share many characteristics with corporations. So much so that some commentators have referred to business trusts as ‘common law corporations’ with their shared characteristics of: limited liability; entity shielding; capital lock-in’s; tradable shares; legal ‘personhood;’ and governance through fiduciary duties. [Tritt and Teschner, The Rise of Business Trusts in Sustainable Neo-Innovative Economics, 88 U. Cin. L. Rev. 735 (2020.)]

Differences: There are some critical differences, however, between a business trust and a corporation. For example, the default fiduciary duties with a business trust are more robust than compared with a corporation: corporate fiduciary standards are less strict. Additionally, business trusts require a focus on wealth maximization that is much stronger than what is mandated by the corporate form of business. But perhaps the biggest difference between a business trust and a corporation is that common law business trusts afford its organizers, owners, and managers a level of privacy and identify shielding that is far beyond corporations, because a common law business trust can be formed without filing with the state. To the point, a common law business trust is a creature of contract and state filings are not necessary for the business trust’s existence.

Michigan: Michigan apparently has no provisions in its laws that relate to a business trust, or at least none that I could find in an admittedly cursory search, other than a trustee corporation (see below.) Business trusts are generally subject to the Michigan business tax (and the former Single Business Tax.)  Moreover, a business trust, which is a form of business organization created and governed by a specific enabling statute, is not covered by the Michigan Trust Code, which defines a trust to exclude a business trust. MCL 700.1107(n) expressly defines a trust to exclude a business trust- “Trust does not include a…business trust providing for a certificate to be issued to a beneficiary.”  The scope of the Michigan Trust Code is thus limited to those trusts that are expressly  defined in MCL 700.7102.

Corporate Transparency Act: A reporting company under the recent federal Corporate Transparency Act (CTA) is defined as a corporation, limited liability company or other similar entity that is created by the filing of a document with a secretary of state or a similar office under the law of a State. [31 U.S.C. Section 5336(a)(11)(A).] As such, this definition is intended to apply to limited partnerships, limited liability partnerships, limited liability limited partnerships, and statutory business trusts.

Trustee Corporation: While I could not find any statute that expressly authorizes and governs a statutory business trust in Michigan, there exists a strange entity referred to as a trustee corporation. [MCL 450.148.] This 1931 statute is a couple of hundred words long, so I will skip repeating it. It seems to apply more to a situation where an instrument directs a corporation to be formed and operated by trustees, which sound much different than a statutory business trust. But perhaps the key phrase in the statute is the last which provides: “Trustee corporations shall be governed by the provisions of this act [the Michigan Business Corporation Act] relating to corporations generally, except as specifically otherwise provided.” In short, a trustee corporation is treated like a conventional corporation to the extent that it must file articles with the State of Michigan, and as such, a trustee corporation will be a reporting company for purposes of the CTA.

Common Law Business Trust: Which leaves us with a common law business trust type of entity, which is not formed by filing with the State of Michigan, and consequently it is not then a reporting company for purposes of the CTA.

Conclusion: Thus, we are left with something of a mystery. The Michigan Trust Code expressly does not apply to a business trust. Yet I could find no statute that authorizes or governs business trusts in Michigan, just the trustee corporation statute, which is not the same thing as a statutory business trust. And we are told by the CTA that it only applies to reporting companies that must file with the state, e.g. the Michigan Secretary of State. If there are common law business trusts operating in Michigan, they apparently are not obligated to file with FinCEN starting in 2024.