From: Phil Osborn (philosborn2001@yahoo.com)
Date: Sun May 26 2002 - 01:32:15 MDT
In response to Wei Dai's posting requesting more
specifics about how the Massachussetts Trust aka Free
Market Trust can be used to finance education for
children.
I have covered this in more detail in past postings.
Sorry. Lot of sleep deprivation lately making it hard
to be succinct or retrieve information from years back
quickly.
Oh, and sorry to stupid.com. It didn't occur to me
until after I had posted that little ironic reference
that in fact there probably is a stupid.com, for real,
and of course there is. My apologies, altho I gather
that my sarcastic thought would probably be right up
their alley. Anyway, maybe they got some free
publicity from my comment...
The trust is a financial mechanism by which people are
given shares in a business or property in return for
investment of some kind, while reducing or eliminating
the shareholders legal liability for actions taken by
the trustees or their agents or employees by
restricting control to those very trustees. Shares
are similar to those issued by a corporation. The
differences may include, depending upon the Articles
of Trust, how much power having a share actually gives
to shareholders, how Trustees are chosen or replaced,
how the Trust may be dissolved, etc.
For a corporation, typically shareholders ultimately
control, while state fiat removes them from most
liability. This state fiat also makes the corporation
- from the latin "corpus" or body, corporation means
literally "making a body." The corporation is legally
an "arificial person" in the U.S., having many of the
rights and lacking some of the liabilities of a
natural person. A corporation as such could not exist
without the state granting it special existence and
privileges (privilege - "private law" privi lege).
Corporations have been convenient for the state dating
back to at least the days of the early British Empire.
A Free Market Trust is purely a private contract, not
requiring any recognition or special treatment from
the state. By restricting decision-making power
strictly to the Trustees, who are not normally subject
to removal by the shareholders, the Trust contract
also eliminates the shareholder liability as in a
corporation, but without special state fiat. This is
an important consideration for potential investors.
Anyone can create a Trust simply by creating the
contract and finding people willing to be Trustees -
taking responsibility for the Trust and potential
liability - and willing to purchase shares to finance
the Trust's endeavors. A declaration of Trust
typically lays out to these potential investors what
the general or specific purposes and intentions of the
Trust are - e.g., holding property, drilling oil
wells, running a grocery store, designing software, or
simply investing in the productivity of an individual
or group.
If the Trust violates its contract or declaration,
then this may give shareholders grounds for demanding
redress, and the Trust contract may specify the means
for this, as in binding arbitration by a set of rules,
or state court actions. Generally a Trust Document
also sets forth rules for when meetings of the
Trustees and/or shareholders may be scheduled or how
shareholders or Trustees may call meetings for special
purposes such as legal emergencies. A fair number of
additional matters, such as how the Trust will
maintain a market in its shares - which again may be
of considerable interest to shareholders will also
typically be included.
In the case of the Trusts that ALH&Co. sponsored, or
consulting on, generally the Trusts were required by
their Trust Document to agree to purchase some
percentage of total shares outstanding at some
percentage below current market on demand or to sell
some percentage at a percentage above market. I.e.,
they had to maintain a viable public market in their
shares.
For a kid, let's say in Central Africa, let's say
there is a local network node that his village can
access. The local school teachers might sponsor the
first kids like they guide promising kids to
scholarships today. I suspect that the kind of local
support and infrastructure that makes the micro-loans
system work would also be employed here. The point
would be to find the most promising kids first, assess
how to get them the means to education or whatever
else they needed in capital to bootstrap past the
local bottlenecks such as impoverished parents, form a
trust in their names, make sure the parents or
guardians were totally involved and committed, etc.,
and publish the news on the net, seeking investors.
The parents might be - probably would be - among the
initial Trustees, but, as with the micro-loans
program, spreading the responsibility might be more
conducive to stability and percieved lower risk by
shareholders.
While perhaps not many individual investors might bite
at first, there would likely be institutional sources
who would want to participate - Soros' group comes to
mind. As a market grew, then mutual funds would
likely get interested and begin offering a fund based
partly or entirely upon capitalizing kids (or adults,
for that matter, as an alternative to the micro-loans
program, which is still basically a top-down bank
lending money, whereas this is an investment vehicle.)
No one can legally bind a kid to such a contract.
However, having a viable personal trust with highly
valued shares would be a huge asset - much more so if
it caught on large scale - in getting further
capitalization to start a business, for example. A
kid could revoke his trust, but, barring unusual
circumstances such as criminally negligant trustees,
for example, he could expect to pay a high price in
terms of lost opportunities to acquire capitalization.
Few people would feel very generous toward someone
who had simply welched on the people who had invested
their hard-earned dollars in raising him or her, and
there would be public records that would follow such a
person.
Because part of the Trust shares allocations would
probably go to reimburse the parents for their efforts
on the kid's behalf, they would have a natural
interest in doing the best parenting job possible.
(In fact, one of the possibilities on which I have
speculated is a currency based on mutual shares in
such trusts.)
Out of time again - hope that helps...
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