ite means of building up the modern great business units. Since the war it has played a prominent part in forming the gigantic combinations that have sprung up in the German steel, chemical and electrical industries, although the holding company principle seems, also, to be gaining favor. However, further explanation and description of specialized uses of the modern corporation would lead into a discussion of securities-substitution companies and combination organizations. Before going into these subjects it will be necessary to explain the voluntary association in the form of trust, as a type of ownership organization. CHAPTER XII THE BUSINESS TRUST General. It is a well recognized principle of common law that a person may temporarily vest the legal title to property together with the exclusive right of its management and control in another as trustee, reserving for himself or others only the profits or benefits that may accrue to such property while under the control of the trustee. Such an act creates a trust estate. The principle has its origin in the right of private property and inheritance, and in its simplest form, it is employed as an instrument of the courts to preserve property conveyed, as by will, to minors during their minority. It is of importance in this work inasmuch as it has come to be used as a form of organization for the conduct of business enterprises. Definition. The business trust may be defined as a business estate in the custody of a trustee, who holds the legal title thereto with the beneficial interest in others who are the beneficiaries. The settlors, or creators, of a trust embarked in business may be the sole beneficiaries where they contract with each other as to how, severally, they may acquire that status. Trusts are essentially of two types, active and simple. In the simple or "dry" trust the title to the property is vested in a trustee for the benefit of another without stipulating or prescribing in the contract the nature of the trust, but leaving this matter to the construction of law. In the active trust, the founder or settlor prescribes in the trust agreement the conditions under which the trust is to be conducted, leaving to the court of equity only the duty of enforcing the terms of the agreement in order that the purpose for which the trust was created may not be frustrated. It is the active trust that is employed for the conduct of business. The structural elements of the business trust may now be summarized as follows: 1. The settlors who draw up the agreement making a trust estate of certain business property and defining the manner in which such property is to be owned and managed and what disposition shall be made of it 2. One or more trustees whom the settlors vest with the legal title to the property and with the power of management and control over it subject to the provisions of the trust agreement 3. The beneficiaries who are defined in the trust agreement, who possess the equitable interest in the trust estate entitling them to the net profits accruing to it and who usually have the power to fill vacancies on the board of trustees. Formation. As seen from the preceding paragraph, a trust embarked in business is the result of a contractual agreement between the settlors and the trustees. The rules of common law, in general, give to the settlors the right to place property in trust and to specify the conditions that shall govern its control and management. Thus the instrument creating the trust, commonly called the trust agreement, is to this form of business organization what the charter is to the corporation, or the articles of association to the joint stock company, namely, its fundamental grant of rights and powers. Since a state may not generally limit the freedom of contract for a purpose other than to protect the public health safety or morals, it follows that the trust agreement may provide for practically any form of organization that places the legal title in the trustees and reserves the benefits to others. Practically the only limitation placed upon the conditions of the trust agreement is with reference to permanence. In practically all states the rule against perpetuities is applied to trust estates. There are no laws prescribing procedure, or limiting the number of settlors, trustees or beneficiaries. In fact, as great a latitude exists in the matter of drafting the details of organization for the business trust as obtains in the ordinary partnership. THE TRUSTEES Of the three elements that go to make up the organization of the business trust-settlors, beneficiaries and trustees the trustees are responsible for the management and direction of the trust estate, the settlors merely make the contract creating the trust and disposing of the estate at its expiration, while the beneficiaries have the equitable interest in the profits. Trustees as Managers. The power of management and direction of the trust estate vested in the trustee under a dry trust, is determined by common law rules. These rules place upon him the same responsibility as would apply to an individual proprietor, or to ordinary general partners in cases where there are several trustees. It thus includes full and unlimited liability on all contracts entered into on behalf of the trust estate and full and unrestricted power of management and control, but exercised under the general supervision of a court of equity whose duty it is to see to it that the purpose of the trust is fulfilled. The trustee cannot delegate to another any part of his discretionary power, that is, his responsibility for final determination of contractual rights and duties. He may, assign to others, however, the performance of purely ministerial duties, but is always responsible for their acts in like manner as a principal is responsible for the acts of his agent. The bar against the delegation of discretionary power is on the theory that the trustee is not an agent, but is himself a principal and the court, therefore, refuses to recognize the responsibility of any one other than the trustee. Where there are two or more trustees, they must act jointly, as a unit, in all discretionary matters. However, these general rules of law, that are applicable in case of a simple or dry trust may be considerably altered in active trusts by the introduction of specific provisions into the trust deed or agreement. In this way the trustees may be authorized to delegate general managerial power to others; and it may also be provided that a designated majority of the trustees shall have power to act for and bind the trust estate. However, all such instruments will be strictly interpreted by the courts. Thus, where a majority is authorized to govern, it is ordinarily held that they are not thereby empowered to act without consulting the others, who must at least be given an opportunity to be heard. As a result of these general rules a high degree of coöperation, such as might obtain in a well ordered partnership, is essential where there is more than a single trustee. - Appointment of Trustees, Removal, Successors. In an active trust the original trustee, or trustees, are appointed by naming them in the trust agreement to which they become parties. Other than the natural mimimum limit of one, there is no rule prescribing the number of trustees that may be appointed. This is left entirely to the settlors, who, of course, should bear in mind the impracticability of a large number in view of the requirement for joint action. The term of office of trustees may be prescribed by the trust deed, but it cannot extend beyond the legal life term of the trust. Where trustees are several in number it is a common practice to classify them. For example, in the old Standard Oil Trust nine trustees were appointed and |