Stock Management Trusts for BusinessSuccession
Yuko Yamada（Mitsubishi UFJ Trust and Banking Corporation）

One of the challenges regarding business succession of small andmedium-sized enterprises, is preventing the diffusion of shares held by
the owner-manager（the Owner）.
If the majority of the assets of the Owner are the shares in

the Owner’s company（the Shares）, the Owner faces a dilemma.

The Owner would likely want to leave benefit from the Shares as
inheritance to the business successor as well as the Owner’s heirs.
However, the Owner would prefer to leave the voting rights attachedto the Shares to business successor rather than the heirs.

In such cases, a Stock Management Trust, as discussed in thisreport, can resolve the dilemma.
The Owner may convert the Shares into a Stock Management
Trust （ie the Shares are converted to trust property held andmanaged by a trustee through a trust contract）, and define all heirs（the business successor and other heirs）as the beneficiaries upon theOwner’s death（I define this scheme using the Stock Management
Trust as the Scheme）.
Then, according to the terms of the trust instruments for thisScheme, the trustee is subject to the directions of the business― 149 ―

信託法研究第38号（2013）

successor by way of the exercise of the right to instruct how toexercise the voting rights attached to the Shares（the InstructionRights）.

In this case, all heirs would benefit from the Share dividends,
while preventing the dispersion of voting rights by allowing thebusiness successor to exercise the Instruction Rights.
In this report, we examined two legal issues in the Scheme.
1.

The first issue we address is the possibility that the trust

contract under the Scheme is invalid in relation to a 1983 court casewhich held that a“stock management trust agreement which does not givethe opportunity of voting to settlor and beneficiary is invalid in terms of theCompanies Act”.

In conclusion, the scope, use and purpose of this StockManagement Trust are different from the court case of 1983, andshould not be held invalid when compared with precedent case law.
2.

The second issue we address is, under the premise thatthe business successor is liable for the duty of care and duty ofloyalty in exercising the Instruction Rights, we considered therelationship between how the Instruction Rights are exercised andthe duties of care and loyalty, respectively（the Relationship）, undersituations（1）and（2）below. Further, we have assumed that there
are three objectives of the Stock Management Trust as follows:（i）maintenance and development of business;（ii）succession of company
management to the next generation; and（iii）distribution of dividends
to beneficiaries.
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（1）The first situation is a capital increase or merger（Case I）.

While this case could meet objective（i）if the voting rights attaching
to the Shares included in the trust property go below the majority of

all the voting rights as a result of the Case I, objectives（ii）and（iii）
would be at risk. In addition, the exercise of the Instruction Rights
regarding the capital increase or merger could benefit the businesssuccessor and his/her interested parties at the expense of the interestsof the other beneficiaries.
（2）The second situation is surplus dividends. If you use a surplus
for the business without paying the dividends, it would meet objective（i）,but could be problematic in relation to objective（iii）.
For each situation described above, we examine the Relationshipand propose clauses to be included in the contract to manage theInstruction Rights in this Scheme.

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