Corporate trusts are an important part of the modern business world. However, it’s not always clear when a business needs to make use of such. As a general rule, corporate trusts are of immense value when a neutral third party is needed. The following specific events are among the most common and important reasons why a business needs a corporate trust service.
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1- To Serve as a Trustee for Debt
Investors have an obvious incentive to ensure that their interests are properly managed and protected. Corporate trust services act as trustees. In this way, they’re able to act to protect the best interests of the beneficiary and ensure that administrative work relating to the debt is properly adhered to. As with the other examples, this is especially important as the trust service acts in good faith.
2- To Hold Funds and Securities in Escrow
One of the important elements of a deal is the availability of a neutral party. In the case of corporate trust services, this neutral party can hold funds and securities during a transaction. This is especially important when the deal depends on certain specifications being met. The neutral party can be trusted to decide fairly when those criteria have been fulfilled.
3- To Maintain the Warrant Register
As is typically the case, this refers to an issue that requires neutrality. The price of stocks is incredibly important. It matters to a company, other holders, and the competition. Any ability to manipulate prices can be seen as a threat. As such, it’s important that a corporate trust service be able to step in to act as a warrant register that can maintain the predetermined stock prices.
4- To Hold Security Under a Collateral Agreement
A corporate trust is an ideal method to ensure security under a collateral agreement. The reason once again hinging on the neutral nature of the party. Anything valuable enough to use with such an agreement will have heavy inherent value. As such, it can be difficult to fully trust any party to participate in the process. Likewise, a party offering a loan needs to be able to fully trust that collateral will be fairly managed. A corporate trust serves that function and can thus benefit both sides of the agreement.
5- To Act as a Subscription Receipt and Escrow Agent
Subscription receipts hold a place of special importance as evidence of commitment. In particular, this serves as evidence of intent to purchase securities. There’s often a need to hold funds in escrow until criteria are fairly judged to have been met and completed in full. A corporate trust is a verifiable party that can enact such a role.
6- To Serve as a Trustee Under a Voting and Exchange Trust Agreement
Sensitive matters such as exchange offers or even restructuring will typically need careful management. While this can sometimes be handled internally, a corporate trust can add significantly to the process, for example, by acting as a neutral party to judge votes and the exchange of older securities for new ones.