What is the difference between a business trust and a company?

A business trust and a company are two quite different structures of law and organizations, each suited to specific purposes or styles of operation. Business trusts are typically used for asset management and distribution, offering flexibility and privacy that companies may not provide. One Pacific Trust offers the best service in setting up and managing business trusts, guiding clients through the complexities of these structures to ensure they meet their strategic and financial objectives. Here are the key differences between them:

1. Legal Structure

• Business Trust: A business trust structure where the assets are looked after by a trustee who is managing the same for the benefit of the beneficiaries of the trust. The trustee is the legal owner of the property of the said trust, but through the terms spelled out by the trust deed, it is incumbent upon him to work for the betterment of the beneficiaries.
• Company (Corporation): If the company behaves as a separate person apart from shareholders-there is no secrecy. Companies are created by a special type of legislation where they possess an independent legal personality that can sue and be sued, own property, and enter into contracts.

2. Ownership and Control

• Business Trust: Such kind of trust is a business trust in which the trustee exercises control toward the trust's management following the requisites of the trust deed. The beneficial owners have their beneficial interests subject to that trust, but mostly, they do not exercise their day-to-day management unless tailored in the trust deed.
• Company: Ownership is based upon shareholding, with shareholders owning parts of the company through shares. Control is exercised by means of a board of directors who are elected by the shareholders. The directors then manage the company's affairs, although the shareholders do vote on major decisions and elect directors.

3. Formation and Regulation

• Business Trust: Created under a trust agreement or deed setting out how the trust is to be run, and the duties of the trustee and the rights of the beneficiaries. Business trusts tend not to be regulated as closely as companies but would be regulated by the law of Trusts.
• Company: It is created by filing articles of incorporation with the appropriate government body and meeting various other regulatory requirements, such as corporate governance standards. The companies are strictly regulated, which involves many ongoing requirements like annual reporting, audits, and compliance with the corporate law.

4. Liability

• Business Trust: Trustees have a personal liability for the debts and obligations of the trust unless the trust deed provides indemnity against that trust's assets. Generally, one can say that the beneficiary has only limited liability to the extent of their interest in the trust.
• Company: Provides limited liability for shareholders, and therefore they will be liable only for the respective amount that they have invested in the company. Personal assets are protected from business risks and loses.

5. Tax Treatment

• Business Trust: Trust taxation entails that it varies with the jurisdiction and the specific type of trust. For instance, grantor trust, simple trust, or complex trust, a trust typically pays the taxes on all undistributed income and the beneficiaries are taxed on what is distributed to them.
• Companies pay corporate income tax on the profits as separate legal entities. The same profits are again taxed at the shareholder level if distributed as dividends and are subject to the tax laws of the jurisdiction.

6. Flexibility and Purpose

• Business Trust: It provides greater flexibility concerning the management and distribution of profits and, many times, can be used to operate specific assets such as real estate or investment portfolios, or it can even be used for estate planning purposes.
• Company: Common uses are for a broader range of business activities, issuing share capital for business growth, allowing other individuals to become owners of the business equity and for this shareholding structure to help improve employees and manager's performance.

Knowing all this will be beneficial in determining the appropriate structure according to the need of the circumstances, such as operation size, business activities, financing needs, and regulation of the ownership and management.