December 04, 2008
Cargill and Background Fiduciary Duties
The arguments in Cargill regarding statutory preemption hinged on whether trustees and managers of a Delaware statutory owed fiduciary duties in the absence of an express provision in the governing instruments. This is the "mere contractual entity" argument that may be gaining traction in Delaware, and which I have criticized at length. As I argued in, for example, Mere Contractual Entities: UBEs and Fiduciary Duties:
Fiduciary duties [arise] in relationships in which persons are entrusted with the management of a business; because they are entrusted with the power to manage, they have a fiduciary duty to use that power primarily, if not solely, in the best interests of the business and all its owners.
In Cargill, Section 3809 of the Delaware Statutory Trust Act expressly incorporates "the laws of this State pertaining to trusts...." Although Vice Chancellor Parsons cited Section 3809 in his opinion in Cargill, Slip Op. at 22-23, he also noted that, in the opinion in In re USA Cafes Litigation, 600 A.2d 43 (Del. Ch. 1991), then Chancellor Allen had "relied almost entirely" on the background fiduciary duties of both trust law and that of other business entities. Id. at 23-24 & n.59.
posted by Gary Rosin
November 20, 2006
Canada Approves Legislation To Get Rid Of Tax Loophole For Income Trusts
On November 7, 2006, Canada’s Parliament approved proposals from that country’s Minister of Finance regarding “entry-level tax[es] on distributions from income trusts and certain publicly listed Canadian partnerships.” The proposed rules are geared to tax income trusts in the same manner as corporations and, thus, to get rid of a taxation loophole that businesses had been taking advantage of by converting corporations into income trusts. The proposed tax applies to a trust or a partnership categorized as a “specified investment flow-through” or “SIFT,” which includes most publicly traded income trusts as well as partnerships with substantial investments in Canadian properties. Under the proposals, SIFTs have to pay a tax at the same level as the federal corporate rate, plus a 13% “provincial tax” for income from business conducted in Canada and specific income and capital gains for so-called “non-portfolio” properties.
And to read another article on Canada’s closing of the tax loophole for income trusts, go here.
August 02, 2006
Recent Lawsuit Over The Subway Franchisee Advertising Fund Trust
A recent article on CNN Money discusses a lawsuit filed by the Subway Franchisee Advertising Fund Trust (SFATF) on behalf of 10,000 franchisees against Subway franchisor Doctor's Associates, Inc. (DAI) and Subway founder Fred DeLuca over the handling of advertising funds kept in the SFATF, which is governed by an elected board of franchisees. The SFAFT was created in 1990 to manage spending of franchisee advertising contributions. A new franchise agreement, first introduced by DeLuca in April of this year, allows DAI to move SFAFT funds to an entity created by DAI, which, according to the franchisees, conflicts with the 1990 trust agreement that created the fund. The article notes that franchisees pay 3.5% to 4.5% of their weekly sales into the fund. Under the Subway franchise agreements, the company takes an additional 8% royalty from each franchisee's top-line sales regardless of the franchisee's profits. Franchisees are concerned that the advertising money placed with the DAI entity will be used for campaigns directed toward increasing sales rather than to boost profits.