Trust (business)
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A trust or corporate trust is a large grouping of business interests with significant
market power In economics, market power refers to the ability of a firm to influence the price at which it sells a product or service by manipulating either the supply or demand of the product or service to increase economic profit. In other words, market powe ...
, which may be embodied as a
corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
or as a group of corporations that cooperate with one another in various ways. These ways can include constituting a
trade association A trade association, also known as an industry trade group, business association, sector association or industry body, is an organization founded and funded by businesses that operate in a specific Industry (economics), industry. An industry tra ...
, owning
stock In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
in one another, constituting a
corporate group A corporate group or group of companies is a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control. These types of groups are often managed by an account manager. The concep ...
(sometimes specifically a conglomerate), or combinations thereof. The term ''trust'' is often used in a historical sense to refer to
monopolies A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a speci ...
or near-monopolies in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
during the
Second Industrial Revolution The Second Industrial Revolution, also known as the Technological Revolution, was a phase of rapid scientific discovery, standardization, mass production and industrialization from the late 19th century into the early 20th century. The Firs ...
in the 19th century and early 20th century. The use of corporate trusts during this period is the historical reason for the name "
antitrust law Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust ...
". In the broader sense of the term, relating to
trust law A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settl ...
, a trust is a centuries-old legal arrangement whereby one party conveys legal possession and title of certain property to a second party, called a trustee. While that trustee has ownership, they cannot use the property for herself, but holds it 'in trust' for the well-being of a beneficiary. Trusts are commonly used to hold inheritances for the benefit of children and other family members, for example. In business, such trusts, with corporate entities as the trustees, have sometimes been used to combine several large businesses in order to exert complete control over a market, which is how the narrower sense of the term grew out of the broader sense. In the United States, the use of corporate trusts died out in the early 20th century as U.S. states passed laws making it easier to create new
corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
s.


History

The OED dates use of the word ''trust'' in a business organization sense from 1825. The business or "corporate" trust came into use in the 19th-century United States as a legal device to consolidate industrial activity across state lines. In 1882
John D. Rockefeller John Davison Rockefeller Sr. (July 8, 1839 – May 23, 1937) was an American business magnate and philanthropist. He has been widely considered the wealthiest American of all time and the richest person in modern history. Rockefeller was ...
and other owners of
Standard Oil Standard Oil Company, Inc., was an American oil production, transportation, refining, and marketing company that operated from 1870 to 1911. At its height, Standard Oil was the largest petroleum company in the world, and its success made its co-f ...
faced several obstacles to managing and profiting from their large oil refining business. The existing approach of owning and dealing with several companies in each state was unwieldy, often resulting in turf battles and non-uniform practices. Furthermore, the Pennsylvania legislature proposed to tax out-of-state corporations on their entire business activity. Concerned that other states could follow, Standard Oil had its attorney Samuel C. T. Dodd adapt the
common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omnipresen ...
instrument of a
trust Trust often refers to: * Trust (social science), confidence in or dependence on a person or quality It may also refer to: Business and law * Trust law, a body of law under which one person holds property for the benefit of another * Trust (bus ...
to avoid cross-state taxation and to impose a single management hierarchy. The Standard Oil Trust formed pursuant to a trust agreement in which the individual shareholders of many separate
corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
s agreed to convey their shares to the trust; it ended up entirely owning 14 corporations and also exercised majority control over 26 others. Nine individuals held trust certificates and acted as the trust's board of trustees. One of those trustees, Rockefeller himself, held 41% of the trust certificates; the next most powerful trustee held about 13%. This trust became a model for other industries. An 1888 article explained the difference between trusts in the traditional sense and the new corporate trusts: Although such corporate trusts were initially set up to improve the organization of large businesses, they soon faced widespread accusations of abusing their market power to engage in anticompetitive business practices. This caused the term ''trust'' to become strongly associated with such practices among the American public and led to the enactment in 1890 of the
Sherman Antitrust Act The Sherman Antitrust Act of 1890 (, ) is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce. It was passed by Congress and is named for Senator John Sherman, its principal author. Th ...
, the first U.S. federal competition statute. Meanwhile, trust agreements, the legal instruments used to create the corporate trusts, received a hostile reception in state courts during the 1880s and were quickly phased out in the 1890s in favor of other devices like
holding companies A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies ...
for maintaining corporate control. For example, the Standard Oil Trust terminated its own trust agreement in March 1892. Regardless, the name stuck, and American competition laws are known today as antitrust laws as a result of the historical public aversion to trusts, while other countries use the term ''competition laws'' instead. In 1898 President
William McKinley William McKinley (January 29, 1843September 14, 1901) was the 25th president of the United States, serving from 1897 until his assassination in 1901. As a politician he led a realignment that made his Republican Party largely dominant in ...
launched the ''
trust-busting Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust l ...
'' era when he appointed the U.S.
Industrial Commission {{Distinguish, Industrial Relations Commission The Industrial Commission was a United States government body in existence from 1898 to 1902. It was appointed by President William McKinley to investigate railroad pricing policy, industrial concentr ...
.
Theodore Roosevelt Theodore Roosevelt Jr. ( ; October 27, 1858 – January 6, 1919), often referred to as Teddy or by his initials, T. R., was an American politician, statesman, soldier, conservationist, naturalist, historian, and writer who served as the 26t ...
seized upon the commission's report and based much of his presidency (1901–1909) on ''trust-busting''. Prominent trusts included: *
Standard Oil Standard Oil Company, Inc., was an American oil production, transportation, refining, and marketing company that operated from 1870 to 1911. At its height, Standard Oil was the largest petroleum company in the world, and its success made its co-f ...
*
U.S. Steel United States Steel Corporation, more commonly known as U.S. Steel, is an American integrated steel producer headquartered in Pittsburgh, Pittsburgh, Pennsylvania, with production operations primarily in the United States of America and in severa ...
* the
American Tobacco Company The American Tobacco Company was a tobacco company founded in 1890 by J. B. Duke through a merger between a number of U.S. tobacco manufacturers including Allen and Ginter and Goodwin & Company. The company was one of the original 12 members of ...
* the
International Mercantile Marine Company The International Mercantile Marine Company, originally the International Navigation Company, was a trust formed in the early twentieth century as an attempt by J.P. Morgan to monopolize the shipping trade. IMM was founded by shipping magnate ...
* the match companies controlled by
Ivar Kreuger Ivar Kreuger (; 2 March 1880 – 12 March 1932) was a Swedish civil engineer, financier, entrepreneur and industrialist. In 1908, he co-founded the construction company Kreuger & Toll Byggnads AB, which specialized in new building techniques. B ...
, the ''Match King'' Other companies also formed trusts, such as the
Motion Picture Patents Company The Motion Picture Patents Company (MPPC, also known as the Edison Trust), founded in December 1908 and terminated seven years later in 1915 after conflicts within the industry, was a trust of all the major US film companies and local foreign-bran ...
or ''Edison Trust'' which controlled the movie patents. Patents were also important to the
Bell Telephone Company The Bell Telephone Company, a common law joint stock company, was organized in Boston, Massachusetts, on July 9, 1877, by Alexander Graham Bell's father-in-law Gardiner Greene Hubbard, who also helped organize a sister company – the New Englan ...
, as indicated by the massive litigation that came to be known as
The Telephone Cases ''The Telephone Cases'', 126 U.S. 1 (1888), were a series of US court cases in the 1870s and the 1880s related to the invention of the telephone, which culminated in the 1888 decision of the US Supreme Court upholding the priority of the patents ...
.


See also

*
Chaebol A chaebol (, ; ) is a large industrial South Korean conglomerate run and controlled by an individual or family. A chaebol often consists of multiple diversified affiliates, controlled by a person or group whose power over the group often exc ...
*
Keiretsu A is a set of companies with interlocking business relationships and shareholdings. In the legal sense, it is a type of informal business group that are loosely organized alliances within the social world of Japan's business community. The ''ke ...
*
Trust company A trust company is a corporation that acts as a fiduciary, trustee or agent of trusts and agencies. A professional trust company may be independently owned or owned by, for example, a bank or a law firm, and which specializes in being a trust ...


References


Bibliography

* * Boudreaux, Donald J., and Thomas J. Dilorenzo.
The Protectionist Roots of Antitrust
" ''
The Review of Austrian Economics ''The Review of Austrian Economics'' is a peer-reviewed academic journal published by Springer Science+Business Media. It was established by Murray Rothbard, who edited ten volumes between 1987 and 1997. After his death, Walter Block, Hans-Hermann ...
'' 6, no. 2 (1993): 81–96. * Barak Orbach and Grace Campbell,
The Antitrust Curse of Bigness
', Southern California Law Review (2012).


External links

* * {{Authority control Business models Monopoly (economics)