Understanding the Perpetual Purpose Trust
Overview and FAQs on the Purpose Trust legal form
Background
At the Purpose Foundation, we are rewriting the rules to create a more just economy. A core part of this work is researching, inventing and open sourcing new models for ownership, governance, and finance that can be used to protect mission and create shared control and benefit among stakeholders (see stewardship models). In this article, we describe the basics of the Perpetual Purpose Trust - a powerful and flexible tool for creating shared ownership models for businesses, , real estate assets, land, and more.
What’s a Perpetual Purpose Trust?
The Perpetual Purpose Trust (PPT) is a non-charitable trust that is established for the benefit of a purpose rather than a person. Unlike most trusts, which have a limited life-span, a PPT may operate indefinitely. PPT’s are governed according to a purpose set forth in a Trust Agreement, a document which redefines the legal fiduciary duty of its trustees (trust stewardship committee).
There is a great deal of flexibility in how Trust Agreements are structured, how the purpose of the trust is defined, and how steward committee members are appointed. As a result, the PPT allows for various aspects of a company’s mission to be protected in the long term- such as profit sharing programs, recurring donations, supply chain practices, stakeholder inclusion in governance, and more.
A trust-owned company is currently the gold standard for steward-ownership in the United States.
Perpetual Purpose Trust at a glance
A fully-setup PPT has 1 core governing document- the “trust agreement”- and 3 key roles that must be filled. Those roles are: 1) Trust Stewardship Committee, 2) Trust Enforcer and 3) Corporate Trustee.
Trust Agreement -The trust agreement is the governing document by which a PPT is to be governed. It defines the beneficiary of the trust, the purpose of the trust, and its governance.
Trust Stewardship Committee (TSC) -The TSC is responsible for governing the assets held by the trust in accordance with the purpose laid out in the trust agreement. TSC members are legally responsible and liable for executing the purpose of the trust. As a group, the votes their ownership interest in favor of the purpose. This creates mission-accountability at the company level by voting on board directors and other issue for which owners must vote (ie. sale of the company, board restructure, capital structure changes).
Trust enforcer- The trust enforcer serves as an independent arbitrator for grievances brought by stakeholders against the Trust Stewardship Committee. In such situations, the trust enforcer would be responsible for deciding whether or not the TSC has violated the terms of the trust agreement or fallen short of its responsibilities. This is a required element of the legal structure.
Corporate Trustee - This is a required element of the PPT legal structure. Corporate trustees are a generic element of many trust structures. A PPT corporate trustee has no substantial decision making authority.
What’s normally written into a trust agreement?
The trust agreement is the trust’s primary governing document, in which the purpose and its governance are defined.
In the case where a Purpose Trust owns a majority stake in a business, this purpose commonly includes:
(1) the mission of a business;
(2) protection against any future sale of the business;
(3) definition and protection of governance structure for stakeholder/peer governance;
(4) protection for employee/stakeholder value-sharing.
In the case of real estate initiatives, the trust purpose often includes:
(1) protection against any future sale of the underlying assets;
(2) protection for long-term affordability for residents;
(3) mandates around neighborhood reinvestment and community access to
resources/economic value generated by assets;
(4) definition and protection of governance structure for stakeholder/peer governance.
Other common practices in the definition of purpose in trust agreements include calling out stakeholders to be included in control and benefit, protecting financial health, outcome-based criteria for evaluation of boards, supply chain practices and more, depending on the mission of the underlying company or asset. Additionally, all governance decision-making processes, committee composition, succession procedures, etc. are documented in the trust agreement. The definition of these processes is unique to each trust/organization and is typically co-created by key stakeholder groups.
Why are Purpose Trusts gaining traction among mission-driven companies and communities?
PPTs are gaining tremendous momentum in the US as a preferred tool for creating shared ownership arrangements and purpose-driven entities of all kinds. Because the PPT is such a power and flexible tool, it is being used in a variety of contexts and by a wide range of audiences, including:
Communities - Looking to prevent displacement and keep value in communities
Non-profit leaders - Looking for flexible alternatives to conventional charitable vehicles
Retiring founders - Seeking intergenerational succession solutions that protect corporate independence and mission, while including employees in upside
Startup founders - Wanting to raise aligned growth capital and build sustainable, long-term oriented organizations.
Municipalities - Looking for alternatives to conventional pathways to grow and keep economic value in communities.
Investors and fund managers - To invest in systems change and intergenerational impact.
How is a Purpose Trust set up?
A PPT is relatively simple to design and incorporate. The level of effort and complexity is similar in essence to setting up a qualified board, governance and articles for a c-corporation. Once governing documents are created, and trust roles are filled, one simply files the trust documents with the appropriate state officials. We commonly use Delaware (more secure) or South Dakota PPTs (cheaper).
A trust can be set up to hold any amount of shares in an underlying company, or any bundle of rights for an underlying asset (ie. land, real-estate). There are no restrictions on the kind of shares or assets the trust can hold, and we commonly see either “common stock” or “voting-only stock” held in PPTs. For optimal mission protection, the eventual goal should be for the trust to acquire and hold 51+% of the voting shares of the company. However, a trust can still be used as a beneficial mission-driven ownership block with as little as 10% of the company (depending on the rest of the ownership structure).
We support companies and communities in designing Purpose Trusts with pre-legal support, aimed at greatly increasing speed and reducing cost. Click here to get in contact about our direct support programs.