The Sherman Anti-trust Act of 1890 was the first measure passed by the U.S. Congress to prohibit trusts. It was named for Senator John Sherman of Ohio, who was a chairman of the Senate finance committee and the Secretary of the Treasury under President Hayes.
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Several states had passed similar laws, but they were limited to intrastate businesses. The Sherman Antitrust Act was based on the constitutional power of Congress to regulate interstate commerce. (For more background, see previous milestone documents: the Constitution, Gibbons v. Ogden, and the Interstate Commerce Act.)
A trust is an arrangement by which stockholders in several companies transfer their shares to a single set of trustees. In exchange, the stockholders receive a certificate entitling them to a specified share of the consolidated earnings of the jointly managed companies.
Toward the end of the 19th century, trusts come to dominate a number of major industries, destroying competition. For example, on January 2, 1882, the Standard Oil Trust was formed. Attorney Samuel Dodd of Standard Oil first had the idea of a trust. A board of trustees was set up, and all the Standard properties were placed in its hands. Every stockholder received 20 trust certificates for each share of Standard Oil stock. All the profits of the component companies were sent to the nine trustees, who determined the dividends. The nine trustees elected the directors and officers of all the component companies. This allowed Standard Oil to function as a monopoly since the nine trustees ran all the component companies.
The Sherman Anti-Trust Act authorized the federal government to institute proceedings against trusts in order to dissolve them. Any combination "in the form of trust or otherwise that was in restraint of trade or commerce among the several states, or with foreign nations" was declared illegal. Persons forming such combinations were subject to fines of $5,000 and a year in jail. Individuals and companies suffering losses because of trusts were permitted to sue in federal court for triple damages.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, Sec. 1. Every contract, combination in the form of trust or other- wise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, at the discretion of the court.
Sec. 3. Every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce in any Territory of the United States or of the District of Columbia, or in restraint of trade or commerce between any such Territory and another, or between any such Territory or Territories and any State or States or the District of Columbia, or with foreign nations, or between the District of Columbia and any State or States or foreign nations, is hereby declared illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court.
Establishing a trust can have benefits and drawbacks depending on your financial situation. If you have significant assets and wish to create a legacy of wealth for your family, a dynasty trust might be a good idea. It's best to talk to an attorney familiar with trusts to see if one works for your circumstances.
The grantor is responsible for paying taxes on a dynasty trust. The beneficiaries pay income taxes if they receive income from the trust, and generation-skipping taxes are deferred until the trust terminates and the final beneficiaries receive the remaining assets.
People with significant taxable assets in the estates benefit the most from dynasty trusts. This is because a dynasty trust becomes the asset owner, so the assets are not included in the estate when the grantor passes away.
The convulsions in the American economy and problem of the trusts led to many calls for reform. Farmers, small business, and Progressive reformers sought government regulation of railroads and industry, though some with a more radical view wanted socialist government ownership. Surprisingly, businessmen were often at the forefront of reforms including government regulation. Ruinous competitive pressures in the market made them seek relief in the form of government regulation that might preserve profitability. The regulations led to the rise of the national regulatory state with executive agencies that acted as a broker among different social interests.
This Essay challenges a central narrative in the history of Anglo-American business by questioning the importance of the corporate form. I argue that the corporate form was not, as we have often been told, the exclusive historical source of the legal powers that enabled modern business. I show that from the late Middle Ages to at least the middle of the twentieth century, the basic powers of the corporate form were also available through an underappreciated but enormously important legal device known as the common law trust.
Throughout modern history, the common law trust frequently allowed businesses to obtain many of the same doctrinal advantages as then-existing versions of the corporate form, including limited liability, entity shielding, capital lock-in, tradable shares, legal personhood in litigation, and a sensible scheme of fiduciary powers. And the trust offered these features in a format that was cheaper and easier to access than the corporation. The trust was never a completely perfect substitute for the corporate form, and it was occasionally burdened by legislative acts that made the trust illegal or otherwise less appealing than the corporate form. Nevertheless, as a matter of judicial doctrine, the trust was remarkably effective in offering the key features of the corporate form.
Parts I and II of this Essay begin by showing how the trust worked in business and by demonstrating that the trust remained persistently popular in business even after the passage of general incorporation statutes. Part III then forms the heart of the Essay. It turns to previously unexamined primary legal sources such as case reports and legal treatises to show that for much of modern history, the trust offered each of the key legal features that we now associate with the modern corporate form, including entity shielding and capital lock-in, limited liability, legal personhood in litigation, and a sensible scheme of fiduciary powers.
This division between equitable and legal title was most famously employed for planning estates and making family gifts. Less well known is that the trust was also widely used to organize business companies. To see how the mechanics of a business trust worked, consider the structure of a real-life water supply company that appeared at the dawn of large-scale, investor-owned business trusts in England in the late 1600s. I will return to this company many times below. The details come to us through judicial reports from the Chancery and House of Lords in the case of Richmond v. City of London.4848Richmond v. City of London (City of London II) (1702) 1 Eng. Rep. 727 (HL); 1 Bro. Parl. Cas. 516; City of London v. Richmond (City of London I) (1701) 23 Eng. Rep. 870 (Ch); 2 Vern. 421....Close To my knowledge, recent historians have never analyzed this case, presumably because previous historical work on the history of business organizations has focused on books, newspapers, and contractual documents rather than on specifically legal sources such as case law and legal treatises. The historiographical value of City of London is nevertheless enormous because it appears to be the first reported case ever to have involved a business company organized as a trust, and the judges who resolved the case were forced to address a number of key issues about the basic features of the company.
In fact, however, the corporation was almost never the exclusive source of strong-form entity shielding in Anglo-American law. The trust has offered a form of entity shielding at least as strong as that offered by the modern corporation for as long as large investor-owned businesses have been common.
The trust also offered limited liability. The form of limited liability the trust offered varied throughout history and was not always exactly like the limited liability we now know in modern corporations. Nevertheless, limited liability in the business trust was often at least as strong as in corporations of the same periods, and sometimes stronger. Limited liability in the trust was also almost always much stronger than it was in the general partnership.
The exceptions to the general rule of joinder emerged in a variety of settings. One of the simplest was in cases in which the parties to a dispute were overseas. If the partners of a partnership or the beneficiaries of a trust were found to be in India or the Caribbean, for example, a court would not insist on joining them, so long as they were adequately represented by others.275275See Good v. Blewitt (1807) 33 Eng. Rep. 343 (Ch) 345; 13 Ves. Jr. 397, 401 (seamen); AG v. Baliol Coll. (1744) 88 Eng. Rep. 538 (Ch) 539; 9 Mod. 407, 409 (out-of-kingdom university); Quintine v. Yard (1702) 21 Eng. Rep. 886 (Ch) 886; 1 Eq. Ab. 74, 74 (beneficiaries in Barbados); Cowslad v. Cely (1698) 24 Eng. Rep. 40 (Ch) 40; Fin. Pr. 83, 83 (co-executor in foreign country); Walley v. Walley (1687) 23 Eng. Rep. 609 (Ch) 610; 1 Vern. 484, 487 (executor in Indies)....Close 2ff7e9595c
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