Perpetual Purpose Trust

1. Overview

The Perpetual Purpose Trust (PPT) is a legal structure that represents a fundamental shift in the concept of ownership, moving from a model of ownership by people to ownership by purpose. At its core, a PPT is a non-charitable trust established to serve a specific, stated purpose indefinitely, rather than benefiting individual or corporate beneficiaries. This innovative ownership model ensures that a company or asset is managed in a way that perpetually serves its mission, locking in its values and protecting it from being sold or straying from its intended path. The problem it solves in the startup and business context is the inherent conflict between purpose and profit that often arises in conventionally owned companies. In traditional structures, the fiduciary duty to maximize shareholder profit can force companies to make decisions that compromise their mission, especially when facing pressures from investors or during an ownership transition. The PPT provides a robust legal framework to insulate a company from these pressures, ensuring that its purpose remains the central guiding force in all its operations.

The concept of the Perpetual Purpose Trust has been developed and popularized by a growing movement of lawyers, entrepreneurs, and organizations dedicated to creating more equitable and sustainable economic models. Organizations like the Purpose Foundation have been at the forefront of researching, inventing, and open-sourcing these new models of ownership, governance, and finance. The PPT is a form of “steward-ownership,” a concept that has gained traction in Europe and is now emerging in the United States. Steward-owned companies are self-governed and profits primarily serve the company’s purpose, with a portion being reinvested in the business, shared with stakeholders, or donated to charitable causes. This aligns directly with the principles of commons-aligned value creation, as it enables the creation of shared ownership models for a wide range of assets, including businesses, real estate, and land. By decommodifying assets and placing them under the stewardship of a trust dedicated to a specific purpose, the PPT framework helps to build and protect community wealth, prevent displacement, and ensure that the value generated by an enterprise is shared more broadly among its stakeholders.

2. Core Principles

1. Purpose as the Beneficiary: The fundamental principle of a Perpetual Purpose Trust is that the trust’s purpose is its sole beneficiary. This legally enshrines the mission of the organization, making it the primary fiduciary duty of the trustees to serve that purpose above all else.

2. Perpetual Existence: Unlike traditional trusts that have a limited lifespan, a PPT is designed to exist in perpetuity. This ensures the long-term protection of the organization’s mission and assets, safeguarding them for future generations of stakeholders.

3. Stewardship, Not Ownership: The PPT model is a form of steward-ownership, where the trustees (or Trust Stewardship Committee) are stewards of the purpose, not owners of the assets. They have a legal responsibility to manage the assets in a way that serves the trust’s purpose, but they do not have the right to sell the assets for personal gain.

4. Mission Lock: A core function of the PPT is to create a “mission lock,” legally protecting the company from being sold or straying from its purpose. This is achieved through the trust agreement, which can include provisions that prevent the sale of the company and ensure that its governance and operations remain aligned with its mission.

5. Stakeholder Governance: PPTs can be designed to include stakeholders in their governance structures. The Trust Stewardship Committee can be composed of representatives from various stakeholder groups, such as employees, customers, community members, and founders, ensuring that their voices are heard and their interests are represented in the decision-making process.

6. Profit for Purpose: In a PPT-owned company, profits are not extracted for the benefit of shareholders but are instead used to serve the company’s purpose. This can include reinvesting in the business, sharing profits with employees and other stakeholders, funding community initiatives, or supporting other mission-aligned activities.

3. Key Practices

1. Drafting a Comprehensive Trust Agreement: The Trust Agreement is the foundational legal document of the PPT. It must clearly and precisely define the trust’s purpose, its governance structure, the roles and responsibilities of the trustees, and the mechanisms for ensuring accountability to the purpose.

2. Establishing a Trust Stewardship Committee (TSC): The TSC is the governing body of the trust, responsible for making decisions that advance the trust’s purpose. The composition of the TSC is critical and should be designed to represent the interests of key stakeholders.

3. Appointing a Trust Enforcer: The Trust Enforcer is an independent party responsible for holding the TSC accountable to the trust’s purpose. They have the power to take legal action against the TSC if it fails to fulfill its fiduciary duties.

4. Appointing a Corporate Trustee: A Corporate Trustee is a legally required element of a PPT in many jurisdictions. While they typically have limited decision-making authority, they play an important role in ensuring the trust’s legal and administrative compliance.

5. Defining the Purpose: The purpose of the trust must be clearly and specifically defined in the Trust Agreement. This purpose should be ambitious enough to inspire and guide the organization, yet concrete enough to be legally enforceable.

6. Structuring for Stakeholder Benefit: The PPT can be structured to distribute economic benefits to a wide range of stakeholders. This can include profit-sharing programs for employees, community benefit funds, and other mechanisms for sharing the value created by the organization.

7. Planning for Succession: The PPT provides a powerful solution for succession planning, allowing founders to transition ownership of their companies in a way that protects their legacy and ensures the long-term continuation of their mission.

4. Implementation

Implementing a Perpetual Purpose Trust involves a thoughtful and deliberate process of legal design and stakeholder engagement. The first step is to clearly define the purpose that the trust will serve. This purpose should be the “North Star” that guides all subsequent decisions. Once the purpose is defined, the next step is to draft the Trust Agreement, the legal document that will govern the trust. This document should be drafted with the assistance of legal counsel experienced in purpose trust law and should be tailored to the specific needs and context of the organization. The Trust Agreement will specify the composition of the Trust Stewardship Committee, the role of the Trust Enforcer, and the mechanisms for accountability and decision-making.

Key considerations during implementation include the selection of the initial trustees, the process for their succession, and the design of the governance structure to ensure that it is both effective and representative of the organization’s stakeholders. It is also important to consider the financial implications of the transition to a PPT structure, including any potential tax consequences and the need for ongoing funding to support the trust’s operations. Real-world examples of PPTs in action demonstrate the flexibility and power of this model. The Kensington Corridor Trust in Philadelphia, for instance, uses a PPT to acquire and manage real estate for the benefit of the community, combating gentrification and displacement. Patagonia, the outdoor apparel company, famously transferred its ownership to a PPT to ensure that its profits are used to fight climate change and protect the planet.

5. 7 Pillars Assessment

6. When to Use

• Mission-Driven Startups: For founders who want to ensure that their company stays true to its mission as it grows and scales.
• Business Succession: For retiring business owners who want to transition their companies to a form of ownership that will protect their legacy and benefit their employees and community.
• Community Development: For community groups that want to acquire and manage assets, such as land and buildings, for the long-term benefit of the community.
• Social Enterprises: For organizations that are seeking to blend a social mission with a for-profit business model.
• Impact Investing: For investors who want to invest in companies that are legally committed to creating positive social and environmental impact.
• Commons-Based Ventures: For any enterprise that seeks to create and manage a commons, whether it be a natural resource, a knowledge commons, or a digital platform.

7. Anti-Patterns and Gotchas

• Vague Purpose: A poorly defined or overly broad purpose can be difficult to enforce and may not provide meaningful guidance to the trustees.
• Captured Governance: The Trust Stewardship Committee can become captured by a particular interest group, leading to decisions that do not serve the broader purpose of the trust.
• Lack of Accountability: Without a strong and independent Trust Enforcer, the trustees may not be held accountable to the trust’s purpose.
• Overly Rigid Structure: The Trust Agreement should be designed to be adaptable to changing circumstances, while still protecting the core purpose of the trust.
• Insufficient Funding: A PPT requires ongoing resources to support its administration and operations. Insufficient funding can undermine its effectiveness.
• Ignoring Stakeholder Input: The process of designing and implementing a PPT should be inclusive and participatory, involving key stakeholders from the outset.

8. References

1. Understanding the Perpetual Purpose Trust
2. Rethinking Ownership: Putting Purpose at the Center
3. How Can a Perpetual Purpose Trust Build Community?