Unit Holders Agreement in Australia: What It Is and How to Set One Up

If you’re running your business through a unit trust, a Unit Holders Agreement (often called a Unitholders Agreement) is one of the most practical tools you can put in place to keep things running smoothly.

It spells out who owns what, how key decisions are made, what happens if a unit holder wants to exit, and how disputes are handled. In other words, it’s your rulebook for governance and growth - tailored to your unit trust.

In this guide, we’ll break down what a Unit Holders Agreement is, how it sits alongside the trust deed and your broader structure, the key clauses to include, and a simple process to get one in place. We’ll also flag common traps and how to avoid them, so you can focus on building value with clarity and confidence.

What Is A Unit Holders Agreement (And How Is It Different From The Trust Deed)?

A Unit Holders Agreement is a contract between the unit holders of a unit trust. It sets the commercial rules for how the trust is run in practice - from decision-making and distributions to issuing or transferring units and resolving disputes.

It sits alongside your trust deed. The trust deed is your foundational instrument that legally establishes and governs the trust (the trustee’s powers, the classes of units, how distributions work at a high level, etc.). Your Unit Holders Agreement complements that deed by:

• Filling gaps with day-to-day governance rules tailored to your unit holders
• Recording commercial arrangements that don’t belong in the trust deed
• Creating clear processes for funding, exits, deadlocks and disputes

Think of the trust deed as the “constitution” for the trust and the Unit Holders Agreement as the practical playbook for the people who own the units.

If your unit trust has a corporate trustee (common in Australia), your agreement can also interact with company law mechanics - for example, when signing under section 127 for trustee company documents or when board approvals are required to implement unit holder decisions.

Why Do Small Businesses Need A Unit Holders Agreement?

When you’re starting out, it’s easy to assume everyone is on the same page. But as your business grows, scenarios arise where good documentation can save significant time and cost. A Unit Holders Agreement helps you:

• Prevent disputes by setting expectations early on contributions, roles and decision-making
• Protect minority and majority interests with voting thresholds and reserved matters
• Control ownership by regulating how and when units can be issued or transferred
• Plan exits with robust buy-sell mechanisms and valuation methods
• Speed up decisions with clear processes for approvals and resolving deadlocks
• Support funding by outlining how additional capital is raised (and consequences if someone doesn’t participate)

If you’ve worked with companies before, you can think of it as the unit trust equivalent of a Shareholders Agreement - but tailored to the trust structure and to unit holders instead of shareholders.

What Should A Unit Holders Agreement Cover?

Your agreement should reflect your business model, ownership split, and growth plans. The following clauses are commonly included for Australian unit trusts.

Ownership, Classes Of Units And Issue Of New Units

Start with a clear cap table: who holds how many units, and what rights attach to them.

If you have or may introduce different classes (for example, income vs. capital units), set out how they work and when they can be converted. The principles are similar to company share classes - this explainer on different classes of shares offers helpful context you can adapt to units with your lawyer’s guidance.

Decision-Making And Reserved Matters

Clarify what the trustee (and its board, if corporate) can decide on its own and which matters require unit holder approval.

• Everyday management: typically delegated to the trustee
• Unit holder approvals: set voting thresholds (e.g. 75% by units) for “big ticket” matters like issuing units, borrowing beyond limits, related party transactions, or changing the trust deed
• Unanimous decisions: for fundamental changes such as winding up the trust or altering economic rights

Distributions And Retentions

Outline how profits and capital are distributed and when the trustee can retain earnings for working capital. Cross-check with the trust deed to avoid inconsistencies and tax issues.

Funding And Dilution

Describe how the business will be funded: reinvested profits, debt, or fresh capital from unit holders.

• Pro-rata offers: existing unit holders get the first right to subscribe for new units
• Shortfall process: what happens if a holder doesn’t participate (e.g. other holders can take up extra units, which dilutes the non-participant)
• Convertible instruments: if you’ll use notes or options, summarise how they convert into units

Transfers, Exits And Buy-Backs

Control who you go into business with. A strong Unit Holders Agreement will regulate when and how units can be transferred, including:

• Pre-emptive rights: before selling to a third party, a unit holder must first offer units to existing unit holders
• Permitted transfers: e.g. to related entities under specified conditions
• Exit events: drag-along and tag-along rights for a sale of the business
• Valuation methods: independent valuers, agreed formulas, or multiples for pricing units
• Buy-backs/redemptions: if the trust can repurchase units, set the rules clearly

While the mechanics are tailored to units, the commercial logic mirrors company practice around transfer shares and exits - a useful reference point when working through options with your advisers.

Deadlocks And Disputes

Deadlocks can stall growth. Include a staged process to resolve them, for example:

• Escalation to senior decision-makers or independent advisors
• Mediation and, if needed, expert determination
• Buy-sell mechanisms (e.g. Russian roulette, Texas shoot-out) if consensus can’t be reached

Also build in a general dispute resolution clause to handle disagreements efficiently before they become litigation.

Confidentiality, IP And Restraints

Protect your business know-how, brand assets and relationships. Common provisions include:

• Confidentiality obligations for all unit holders
• IP assignment and licensing frameworks (who owns and who can use IP)
• Reasonable non-compete and non-solicit restraints to protect the business

Governance, Reporting And Insurance

Set expectations for board and unit holder meetings, reporting frequency, budgets, and risk management. It’s also sensible to address insurance (e.g. directors’ and officers’ cover for the trustee company) and sign-off processes for major contracts.

Execution And Form

In Australia, agreements like these are often executed as a Deed for enforceability and clarity on consideration. If a company trustee is signing, confirm execution formalities are met, including where relevant the company’s rules for signing under section 127.

How Does A Unit Holders Agreement Fit With Your Structure?

Most unit trusts operating a trading business in Australia use a corporate trustee. If that’s you, there are three documents that should “talk to each other” so your governance is consistent:

• The trust deed (establishes the trust, trustee powers, and unit rights)
• The Unit Holders Agreement (governs unit holders’ commercial arrangements and approvals)
• The trustee company’s rules (a Company Constitution, if adopted, and any board policies)

You’ll also want to ensure alignment with any side agreements - for example, employment or consultancy agreements for founder-unit holders, or key supplier or customer contracts that are subject to approval thresholds.

If you’re weighing up whether to use a unit trust at all, consider how a Unit Holders Agreement compares to a company’s Shareholders Agreement. The business outcomes can be similar; the right structure typically turns on tax, asset protection and investor expectations. We can help you choose and document a structure that supports your plans.

Step-By-Step: How To Put A Unit Holders Agreement In Place

You don’t need to overcomplicate the process. Here’s a straightforward pathway Australian small businesses commonly follow.

1) Confirm Your Structure And Roles

List the unit holders, their current (and proposed) unit holdings, and any classes of units. Identify who will be directors of the trustee company and what roles each founder will play in the business.

2) Map Key Commercial Terms

Agree on the big levers before you draft:

• Decision-making thresholds and a shortlist of reserved matters
• Distribution and retention policies
• Funding approach and pre-emptive rights
• Transfer restrictions, buy-sell mechanisms and valuation approach
• Reasonable restraints and confidentiality expectations

3) Draft The Agreement (Aligned With The Trust Deed)

This is where tailored legal drafting adds real value. Your lawyer will align the agreement with the trust deed to avoid inconsistencies and ensure tax and regulatory issues are considered. If you plan to introduce investors later, draft with future rounds in mind to avoid a re-write.

If you prefer a starting point and guidance, speak to us about preparing a tailored Unitholders Agreement that fits your goals and timeframes.

4) Execute Properly And Update Your Records

Arrange execution by all unit holders and the trustee (often as deed). Keep an executed copy with your trust deed and corporate records. If the agreement involves a reallocation of units or a restructure, ensure the required resolutions and any ancillary documents (for example, a Deed of Assignment for specific contractual rights) are also completed.

5) Keep It Live

As your business evolves, revisit your agreement at key milestones: new funding, changes to the team, issuing new units, or when you prepare for a sale. Treat it as a living governance tool, not a “set and forget” document.

Common Mistakes To Avoid

We regularly see fast-growing businesses hit avoidable friction points. Here are the big ones to watch for.

• Relying only on the trust deed: trust deeds are foundational, but they rarely cover the commercial ground a Unit Holders Agreement does - especially around exits and dispute resolution.
• Vague transfer and valuation rules: unclear pricing or timing creates stalemates when someone wants to exit. Decide the valuation method now (independent valuer, formula, or hybrid) and document deadlines.
• No deadlock plan: 50/50 ownership without a deadlock mechanism is risky. Include escalation and fair buy-sell processes.
• Ignoring future funding: if you’ll need capital, agree now on pre-emptive rights and consequences for non-participation to avoid surprises later.
• Inconsistent documents: misalignment between the trust deed, Unit Holders Agreement and your Company Constitution causes confusion. Keep them consistent.
• Skipping formal execution: ensure correct execution formalities, particularly where the trustee company is signing and board approvals are required.
• Missing protective provisions: confidentiality, IP ownership, and reasonable restraints protect value - don’t leave them out.

Exits, Transfers And Bringing In Investors: What’s Different In A Unit Trust?

Most of the commercial drivers - control over who you’re in business with, fair pricing, and clean processes - are the same whether you’re dealing with shares or units. The practical differences arise from how your trust deed works and tax considerations.

When you’re planning an exit or a new investment round:

• Check the trust deed’s rules on issuing and redeeming units, and make sure your Unit Holders Agreement doesn’t conflict
• Use pre-emptive rights to maintain control over the cap table
• Document tag and drag rights to facilitate a clean sale
• Agree on valuation mechanics well before you need them (and keep them current)

If you’ve previously raised capital through a company, you’ll recognise many of these tools from share sales and transferring shares. The key is adapting the playbook to units and your trust deed, so the legal mechanics support your commercial deal.

What Other Documents Work With A Unit Holders Agreement?

Depending on how your business operates, it’s worth ensuring your broader legal toolkit is in place. Common documents that sit alongside your Unit Holders Agreement include:

• Trust Deed: The foundational instrument establishing the unit trust and setting high-level rules.
• Company Constitution (for the trustee): Internal rules for the corporate trustee’s governance; keep it aligned with your Company Constitution and your Unit Holders Agreement.
• Founder/Executive Agreements: Employment or consultancy contracts for founders working in the business, including IP and restraint clauses.
• Key Commercial Contracts: Customer terms, supplier and distribution agreements - your day-to-day risk management tools.
• Deeds For Specific Transactions: Where you need to shift rights or settle a dispute, targeted documents such as a Deed of Waiver, Release & Indemnity or a Deed of variation can be useful.

Key Takeaways

• A Unit Holders Agreement gives unit holders a clear playbook for decision-making, funding, exits and disputes - complementing (not replacing) the trust deed.
• Align the agreement with your structure: the trust deed and, where relevant, the trustee’s Company Constitution should all point in the same direction.
• Prioritise clauses on ownership and classes of units, reserved matters, distributions, pre-emptive rights, transfer rules, valuation and deadlock resolution.
• Treat the agreement as a living document: review it at key milestones like new funding, changes to the team, or a proposed sale.
• Execution matters: use the correct form (often a Deed) and ensure formalities are met, especially when a corporate trustee is signing under section 127.
• Getting a tailored Unitholders Agreement drafted early can prevent disputes and make future funding and exits much smoother.

If you’d like a consultation on preparing or reviewing a Unit Holders Agreement for your Australian business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.