Corporate governance refers to the system of rules, practices, and processes by which a DST is directed and controlled. This structure involves balancing the interests of many stakeholders in a DST, which might include the investors (also called beneficiaries), the trustees, management, customers, government, and others.
Fundamentally, corporate governance provides a framework for attaining a DST’s objectives and encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.
In a DST:
- Trustees: The trustees are responsible for the day-to-day operation of the trust. They’re the ones who enter into agreements, contracts, etc. on behalf of the trust. They’re selected by the sponsor and their actions are governed by the trust agreement.
- Beneficiaries: The beneficiaries are the investors who own beneficial interests in the trust. They have the right to receive distributions from the trust’s income but don’t have the ability to influence the day-to-day operation of the trust.
- Sponsor: The sponsor is the person or entity that forms the DST. The sponsor selects the initial trustee(s) and the property that’s transferred into the DST.
- Signatory Trustee: The Signatory Trustee’s role is to execute documents on behalf of the DST, but otherwise has no duties, responsibilities, obligations, or liability for the actions of the DST.
While the structure of a DST is such that it doesn’t function exactly like a corporation, the concept of corporate governance is still extremely important to ensure fairness, transparency, and accountability within the DST. The Delaware Statutory Trust Act and other laws and regulations provide the basic governance framework, but many of the specifics are determined by the trust agreement that establishes each specific DST. These trust agreements can have a wide variety of terms and provisions, depending on the specifics of the DST and the intentions of its creators.