What are Combination Trusts?
“Trust movement originated in the USA as a devise to check cutthroat competition and avoid depression arising out of over production in industry. ”
The dictionary meaning of ‘Trust’ is confidence in somebody. Similarly in the business field when a property is handed over to certain persons in confidence that they will make use of it for the good of others or for some specific objectives, the property is said to be held under trust. In this article we will discuss trusts formed by way of business combinations.
Trust movement originated in the USA as a devise to check cutthroat competition and avoid depression arising out of over production in industry. It was basically a corrective measure. But later it itself became fraught with a lot of shortcomings.
Actually, the problem lies in human nature. Things or actions that are good and flawless in the beginning tend to become sullied and corrupted with the passage of time. But, here we would just take a look on the functioning and merits of combination trusts.
A trust is vertical or horizontal or both a vertical and horizontal combination of firms that is effected in order to obtain the benefits of integrated management and centralized control.
In a trust shareholders of different companies transfer their stocks to the board of trustees in exchange for trust certificates. Voting authority is vested in the board of trustees. The trust certificates carry a right to dividend, which is declared out of the mutual income after deducting trust-operating expenses.
Separate identity of the constituent companies is maintained. Trusts may be organized horizontally to avoid competition or vertically to be self-reliant in all the requirements for keeping up the continuation of industrial production.
Trusts are more secure and strong as a form of combination for reducing the intensity of competition and for ensuring stability in production. As different companies come under integrated control and direction, a common team of technical and managerial experts takes care of all the business functions.
It also results in realization of economies of large-scale operations in respect of centralized purchase and integrated management. Better regulation of prices and output becomes a reality since there is no fear of infringement of agreement by an ingredient company.
So, we can say that combination trusts if run with honesty and ‘trust’ can become a major force against unscrupulous competition and various other business ills.
Author - DeeKay
Tags - Finance, Economy
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