“Fiduciary agreement – a trust company limited by shares”
What is the practical significance of a fiduciary limited liability company
Are you looking for a construction in which you can manage a limited liability company without disclosing your actual position? Do you intend to sell shares but leave yourself with an influence on the management of the company? Or maybe due to other obligations you do not want to establish a limited liability company by yourself? The answer to your questions may be fiduciary running a limited liability company. From this article you will learn:
- For what purpose a trust agreement is concluded,
- What are the types of trusteeship,
- What are the benefits and risks of running a company through a third party?
Sometimes it is more important to have a real impact on the exercise of rights and obligations associated with them from the actual holding of shares in a limited liability company. This is ensured by the conclusion of a trust agreement. There are two sides to this contract:
- entrusting – if you entrust, for example, through sale, shares in a limited liability company to another person and at the same time, or only oblige him to exercise share rights in a specific manner, you are the entrusting party,
- trustee – if you stay, you are already a partner in a limited liability company, but in a contract with the trustee you have committed to a particular procedure, you are a trustee.
In practice, the trustee becomes a partner of a limited liability company entered in the Register of Entrepreneurs of the National Court Register – if it holds at least 10% of shares in the company. On the other hand, the entrusting person has an influence over the method of exercising share rights by such a partner in the manner resulting from the trust agreement.
The strength of the trustee’s influence on the trustee depends primarily on the content of the trust agreement. For this, you can use typical civil law clauses, such as the contractual penalty clause. It is also possible to introduce a purchase option clause, thanks to which the entity may purchase shares in a limited liability company at any time
A custody agreement, as such, does not require any special form. Nevertheless, if its element is to become a transfer of shares in a limited liability company, it is necessary to maintain a written form with a signature certified by a notary public.
Types of trust
There are two basic types of trusteeship. The first of these is the so-called fiduciary trust. We will deal with it if you transfer your shares in a limited liability company to a third party and, under the contract concluded with it, you set limits on the buyer’s own decision making.
The second type of trust is empowering trust. In this case, the entrusting party does not transfer shares in a limited liability company to another person. Nevertheless, in the agreement between him and the trustee or trustees, the latter commit themselves to a specific method of intra-corporate behavior. The contracting party does not become a partner of a limited liability company, but obtains indirect influence on it through agreements concluded with its shareholders.
Advantages and disadvantages of a trust
Importantly, trust contracts may be public and then disclosed to the other partners. In some cases, however, you may not want to disclose your position in the company. The latter case will be used in particular in the following cases:
- the trustee can not officially acquire shares in a limited liability company, e.g. in connection with other contracts to which he is a party,
- the investor does not want to disclose the actual degree of involvement in a given limited liability company, for example, due to the need to obtain additional consents or disclose the fact to the other shareholders.
The trust agreement allows you to conduct business through a limited liability company in which the trustee is not an official partner or reveals only a small part of the actual involvement in it. On the other hand, such a person has no direct influence on the company, only indirect. Hence, it is not excluded that partners who are trustees will act against the instructions of the trustee.
So despite the fact that you will be entrusted, it does not guarantee you full control over the trustees, and therefore also the company itself. The content of a specific trust deed will play a significant role in this respect.