I Have A Unit Trust: Do I Need A Unitholders Agreement?

Unit trusts are a popular structure in Australia for joint ventures, investments and family businesses. They’re flexible, tax-efficient (with the right advice) and allow you to share ownership in fixed “units”.

But here’s the catch many founders discover too late: the trust deed rarely covers everything you’ll need for day-to-day decision making, funding, exits and dispute resolution. That’s where a Unitholders Agreement comes in.

In this guide, we’ll explain what a Unitholders Agreement is, when you need one, what it should include, and how it works alongside your trust deed and any corporate trustee arrangements. We’ll also outline practical steps to get one in place so you can focus on growing your venture with confidence.

What Is A Unit Trust (And How Does It Work)?

A unit trust is a legal arrangement where a trustee holds assets for the benefit of unitholders. Each unitholder owns “units”, much like shares in a company. Their rights to income and capital are generally proportional to the units they hold.

Many businesses use a unit trust for asset protection, funding flexibility and to bring in investors. If you’re exploring if a trust is right for you, it’s worth understanding the broader benefits and risks of trusts in Australia before you start.

Typically, the trust’s “constitution” is a trust deed. It sets out the trustee’s powers, how units can be issued or redeemed, and how distributions work. However, trust deeds are often generic and focus on high-level powers. They don’t usually address commercial ground rules between unitholders - things like board control, approval thresholds, transfer restrictions or how to handle deadlocks.

Do I Need A Unitholders Agreement?

In most cases, yes - if there is more than one unitholder (or you expect to add investors later), a Unitholders Agreement is strongly recommended.

Think of it as your “rulebook” between the people who own the units. It sets expectations upfront, reduces the risk of disputes and provides practical mechanisms for governance, funding and exits. Without it, you’re relying on a generic trust deed and general law - which often leaves gaps, slows decisions and creates friction just when you need alignment.

If you’ve used companies before, a Unitholders Agreement is the trust equivalent of a Shareholders Agreement. The concepts are similar (veto rights, pre-emptive rights, drag/tag, dispute processes) but tailored to a trust structure and any corporate trustee in the mix.

Common signs you should formalise a Unitholders Agreement now:

• You have two or more unrelated investors.
• You’re planning a capital raise or issuing more units.
• You need clear decision-making thresholds for major matters.
• You want to lock in transfer restrictions and exit pathways.
• You’ve appointed a corporate trustee and want governance alignment with its constitution.

If you’re still weighing it up, a well-drafted Unitholders Agreement is relatively cost-effective compared with the time, cost and stress of resolving a governance dispute after the fact.

What Should A Unitholders Agreement Cover?

Every trust and investor group is different, but most Unitholders Agreements in Australia cover the following core areas.

Decision-Making And Control

• Reserved matters: Define which major actions need unanimous consent (or a special majority). For example, issuing new units, borrowing above a threshold, changing the business of the trust, entering related-party transactions or removing the trustee.
• Board or management: If you have a corporate trustee, set out how directors are appointed and removed, quorum, and voting rights so control is clear day-to-day.

Issue, Redemption And Transfer Of Units

• Pre‑emptive rights: If a unitholder wants to sell, other unitholders get first right to buy on the same terms before units go to a third party.
• Drag-along/tag-along: If a majority sells, drag-along can require the minority to sell to secure a clean exit; tag-along lets minority investors sell on the same terms so they’re not left behind.
• New units: Rules for how and when new units can be issued (to avoid unwanted dilution) and any required approvals.

Distributions, Capital Calls And Funding

• Distribution policy: How income and capital distributions are determined and timing expectations (noting the trust deed’s requirements).
• Capital contributions: If the trust needs additional funding, set out how contributions are requested, consequences of not funding, and whether loans vs equity (units) apply.
• Debt funding: Approval thresholds for external finance and security.

Valuation Mechanisms

• Independent valuation: A clear method for valuing units in transfers, buy-backs or exits reduces disputes.
• Formulae or expert determination: Consider whether a set formula or expert valuer is used. In corporate contexts, parties often look to methods similar to those used when valuing shares, adapted for units and trust assets.

Information Rights And Reporting

• Access to financials: Frequency and format of management accounts, annual financial statements and budgets.
• Inspection rights: Reasonable access to records (balanced with confidentiality obligations).

Confidentiality, Restraints And IP

• Confidentiality: Protect the trust’s non‑public information.
• Restraints: Reasonable restrictions on competing activities and solicitation while involved and for a short period after exit.
• Intellectual property: Clarify ownership of IP used or developed by the trust and licencing arrangements between related parties.

Disputes And Deadlock

• Escalation: A stepped process (negotiation, mediation and, as a last resort, arbitration or court).
• Deadlock breakers: Chair’s casting vote, buy‑sell mechanisms or temporary independent director for specific decisions.

Events Of Default And Exit

• Default triggers: Insolvency, material breach, fraud, or change of control of a unitholder.
• Consequences: Buy‑out rights, forced transfers, or termination options with a fair pricing mechanism.

Practical Extras

• Notices and timeframes: Use clear definitions and time periods to avoid confusion (many agreements define “business day”, for example).
• Costs and amendments: Who pays legal costs and how changes are approved.
• Execution: Whether the agreement is signed as a deed and how parties will execute (more on this below).

How Does It Sit With The Trust Deed And Company Constitution?

Your Unitholders Agreement should work in harmony with the trust deed - and, if you have a corporate trustee, with the trustee company’s constitution.

As a rule, the trust deed wins on pure trust law issues (like the trustee’s powers and distribution mechanics). The Unitholders Agreement focuses on the commercial relationship between unitholders and how those powers are exercised in practice. If there’s any inconsistency, a well-drafted Unitholders Agreement will state which document prevails for various topics and may require amending the trust deed to align where needed.

Where there’s a corporate trustee, ensure governance settings are consistent. For example, if the Unitholders Agreement sets a veto right on new debt, but the trustee company’s constitution allows the board to approve borrowing by simple majority, you’ll want to update the Company Constitution or add board rules so there’s no mismatch.

If you’re curious about execution format, many Unitholders Agreements are signed as a deed (particularly when there’s no clear exchange of value at signing, or to access longer limitation periods). If you do execute as a deed, check your signing blocks and witnessing formalities. You can also consider electronic signing - Australia now recognises e‑signing for most agreements and deeds in many cases, but there are rules and process requirements to follow. Here’s a helpful primer on wet‑ink vs electronic signatures.

If a party signing is a company (including your corporate trustee), you can streamline execution by signing documents under section 127 of the Corporations Act, which provides a statutory method of corporate execution that counterparties can generally rely on.

How Do I Put A Unitholders Agreement In Place?

Getting your Unitholders Agreement drafted and signed doesn’t have to be hard. Here’s a simple roadmap.

1) Map Your Structure And Stakeholders

Confirm who the trustee is (corporate or individual), the current unit register, intended unit holdings after any new issue, and whether there are any related-party arrangements (such as services or IP licences) to account for.

2) Review The Trust Deed And Constitution

Identify any clauses that need to be mirrored or adjusted. This might include unit issue processes, redemption rights or trustee powers. Make a list of any amendments you’ll need to keep documents aligned.

3) Agree The Commercial Settings

Before drafting, align on the big-ticket items: board composition, reserved matters, pre‑emptive rights, drag/tag percentages, distribution policy and dispute resolution approach. This saves time and ensures the first draft reflects the deal you actually want.

4) Draft The Agreement

A tailored Unitholders Agreement should reflect your trust deed, investor dynamics and growth plans. If you’re converting from a company model or bringing across investors used to companies, it can help to mirror the structure of a Shareholders Agreement so expectations are familiar - just ensure the language is adapted for a trust.

5) Tidy The Surrounding Documents

Where needed, update the trust deed, the Company Constitution (if you have a corporate trustee), and any related agreements. Consistency avoids loopholes and day‑to‑day friction.

6) Execute Properly

Confirm whether you are signing as an agreement or as a deed. Set up appropriate execution blocks for individuals, companies, and the trustee. Consider e‑signing logistics and whether section 127 execution is available for any companies signing.

7) Keep It Live

Store the executed agreement with your records, update your unit register and cap table, and diarise any review points (for example after a capital raise or material change). As your trust grows, revisiting the agreement ensures it still fits your strategy.

Key Takeaways

• A trust deed sets the legal framework for your unit trust, but it rarely covers the commercial ground rules between unitholders.
• Most multi‑investor unit trusts should have a Unitholders Agreement to manage decision‑making, funding, transfers, exits and disputes.
• Align your Unitholders Agreement with the trust deed and, if you have a corporate trustee, the Company Constitution, so there are no conflicting rules.
• Core clauses typically address reserved matters, pre‑emptive rights, drag/tag, distributions, capital calls, valuation methods, confidentiality and deadlock resolution.
• Decide whether to sign as an agreement or a deed, consider electronic execution, and use Corporations Act section 127 where appropriate for company signatories.
• Getting the document tailored early is far cheaper - and much less stressful - than trying to fix a governance dispute later.

If you’d like a consultation about setting up or reviewing a Unitholders Agreement for your unit trust, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.