Susan N. Gary has made available for download her article, The Oregon Stewardship Trust: A New Type of Purpose Trust that Enables Steward-Ownership of a Business, published in the University of Cincinnati Law Review. The Abstract is as follows:
Founders of a business that seeks to accomplish non-financial purposes while making profits may want a business structure that will protect the company’s mission over time. Owners of a family business may worry about the abilities or interest of the next generation to manage the business. A new form of trust, called a stewardship trust, allows a company to lock in its mission and purposes, while protecting the business from the influences of distant shareholders.
In response to growing interest in stewardship-ownership of businesses, in 2019 the Oregon legislature adopted a stewardship trust statute, to be added to the Oregon Uniform Trust Code. The stewardship trust idea starts with Uniform Trust Code (UTC) § 409, a section that authorizes a noncharitable purpose trust. The new statute does not include two requirements that appear in § 409 and make its use for steward-ownership less than optimal. The stewardship trust statute contains no time limit, in contrast with the UTC requirement that a purpose trust end in 21 years (90 in Oregon). The new section also drops the provision that permits a court to reduce the amount held in a purpose trust if the court decides that the amount is not required for the intended purposes. The new statute adds some requirements, including requirements that the trust have a business purpose and a trust stewardship committee, and creates a framework of default rules to guide businesses seeking to adopt steward-ownership.
This article explains the history of noncharitable purpose trusts and the reasons behind the requirements in UTC § 409 that make it unsuitable for a business seeking to establish steward-ownership. The article provides details about Oregon’s new statute, explaining how the management and control of a business using a stewardship trust works. After creating a trust under the new statute, the owners of the business transfer their interests to the trustee of the stewardship trust, and the trust buys them out using retained profits, debt, or preferred non-voting stock. The trust is difficult to modify, and the structure makes a sale of the business or a significant change of purposes difficult. The company can use preferred non-voting stock to allow founders or family members to retain a financial interest in the business. A trust stewardship committee directs the trustee in decisions relating to the management of the business. Depending on how the trust is structured, stakeholders can elect members of the trust stewardship committee or members can be determined in some other way. A trust enforcer enforces the purposes of the trust.
Founders of mission-driven business ready to retire, new business owners looking for a better business model, and family businesses seeking protection from the foibles of future generations may find steward-ownership attractive. A stewardship trust may be the right tool to protect the financial stability of a business while also preserving its overall purposes and mission. Oregon’s stewardship trust statute provides a model for other state legislatures and for the drafters of the UTC to consider.Gary, Susan N., The Oregon Stewardship Trust: A New Type of Purpose Trust that Enables Steward-Ownership of a Business (July 25, 2019). University of Cincinnati Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3426845
Posted by Jessica Zhang, Associate Editor, Wealth Strategies Journal.