Legal Alternatives to Trust Fund Accounts in Jordan

Legal Alternatives to Trust Fund Accounts in Jordan

 

Trust funds are internationally recognized vehicles for asset management, protection, and transfer, often structured through legally distinct entities and governed by comprehensive trust laws. In Jordan, however, the legal landscape is marked by the absence of a dedicated trust fund framework. This gap has prompted practitioners and stakeholders to explore alternative mechanisms for achieving similar objectives, with private shareholding companies emerging as a notable substitute. This article examines the legal viability of private shareholding companies as alternatives to trust fund accounts in Jordan, providing a critical analysis grounded in relevant Jordanian laws and regulatory structures.

Without a dedicated trust law, Jordanian practice relies on contractual arrangements, wherein trustees are appointed via trust deeds to manage assets on behalf of beneficiaries. These arrangements are typically governed by principles found in the Civil Code, which provide for agency and fiduciary relationships, and by contractual law. Trustees are bound by the terms of the trust deed, which sets forth their duties, powers, and the scope of asset management. Registration of such arrangements is not mandatory, leading to potential ambiguities regarding legal recognition and enforceability.

Due to the absence of a statutory trust regime, trust-like arrangements in Jordan are subject to general oversight by the judiciary, especially when disputes arise regarding the interpretation of trust deeds or the conduct of trustees. The lack of formal registration requirements means that asset protection and beneficiary rights depend on the quality of contractual drafting and the willingness of courts to enforce these arrangements under general civil law principles.

The Penal Code addresses issues of fraud, breach of trust, and misappropriation of assets. Trustees who act dishonestly or contrary to the interests of beneficiaries may be subject to criminal liability. This provides a deterrent against malfeasance but does not establish a comprehensive regulatory or supervisory regime for trust arrangements.

The Civil Code governs contractual relationships, agency, and fiduciary duties. It enables parties to create binding agreements for asset management and sets forth remedies for breach of fiduciary duties. However, it lacks specific provisions for the creation, administration, and termination of trusts as recognized in common law jurisdictions.

The Companies Law provides the statutory framework for the incorporation and regulation of various company forms, including private shareholding companies. It outlines requirements for registration, governance, share structure, and reporting obligations. Importantly, it allows for flexibility in structuring ownership and management, which can be leveraged to replicate certain features of trusts.

Private shareholding companies in Jordan are incorporated under the Companies Law. They require a minimum number of shareholders and can be structured to hold and manage assets on behalf of specified beneficiaries, who may be shareholders or otherwise entitled to benefit from the company’s activities. The share structure allows for clear delineation of ownership interests, and shares can be issued with restrictions on transfer, voting, or participation, mirroring some aspects of trust beneficiary rights.

Private shareholding companies are subject to annual reporting, external audit, and compliance with governance standards set by the Ministry of Industry, Trade, and Supply. Directors and managers owe statutory duties to act in the company’s best interests, which may be aligned with the interests of designated beneficiaries. The company’s articles of association and internal regulations can be tailored to impose fiduciary-like obligations on directors, enhancing asset protection and management oversight.

The principal distinction between trust funds and private shareholding companies lies in their legal nature and regulatory oversight. Trust funds, where recognized, are governed by a specialized legal framework that provides for asset segregation, beneficiary protection, and trustee accountability. In Jordan, contractual trust arrangements lack statutory recognition and regulatory supervision, creating potential risks in enforcement and asset protection.

Private shareholding companies, represent a cornerstone of modern corporate structures, providing versatile mechanisms for investment, ownership, and management. This article examines the legal frameworks governing shareholders and the diverse types of shares available within shareholding companies. We analyze the flexibility afforded by these structures, the options available to beneficiaries, mechanisms for inheritance, and how corporate governance ensures fiduciary duties and asset segregation akin to trust arrangements.

Shareholding companies may issue various types of shares, each conferring distinct rights and obligations. The flexibility in share structure allows companies and investors to tailor ownership and management according to specific needs.

The legal framework governing shareholding companies permits significant customization in the design and allocation of shares. Beneficiaries may specify the types and quantities of shares they wish to hold, subject to management control or other restrictions. Shares can be allocated among family members, trusts, or other entities, and their transferability can be tailored through restrictions in the company’s articles. This flexibility enables mechanisms for shareholders to designate beneficiaries and specify the inheritance of shares. Shareholders may include provisions in their will or in articles of association to ensure their shares pass to chosen heirs or beneficiaries. Companies may also offer nominee arrangements or custodial structures that facilitate the smooth transfer of ownership upon death or incapacity, reducing the risk of disputes and ensuring continuity in ownership and management. Asset segregation is a key feature of the shareholding companies, ensuring that company assets are distinct from those of individual shareholders. This legal separation offers protection against personal liabilities and facilitates the management of company assets for the benefit of all shareholders.

The legal architecture of shareholding companies offers extensive flexibility in share structure, enabling customization to meet the needs of diverse investors and beneficiaries. Mechanisms for beneficiary designation, inheritance, and asset segregation mirror the protections found in trust arrangements, while robust corporate governance frameworks safeguard fiduciary duties and shareholder rights.

In the absence of a dedicated trust fund legal framework in Jordan, private shareholding companies present a viable and legally robust alternative for asset management and protection. While these entities do not replicate all features of statutory trusts—particularly asset segregation and beneficiary rights—they offer significant advantages in terms of legal certainty, regulatory oversight, and flexibility. Policymakers may wish to consider developing a dedicated trust law to address the limitations inherent in contractual and corporate substitutes, but in the interim, private shareholding companies remain the most effective legal alternative for trust fund arrangements in Jordan.

 

Attorney Ghaith R Al Majali

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