Unit Holders: Rights And Obligations In A Unit Trust

If you’re running (or planning to start) a small business in Australia, you’ve probably heard people mention unit trusts at some point - often in the same breath as asset protection, family businesses, or bringing in investors.

But unit trusts can feel confusing at first, especially when the discussion turns to who the unit holders are, what the trustee can do, how distributions work, and who actually controls what.

Getting this right matters. If you misunderstand how unit holders’ rights work (or what the trustee is permitted to do), you can end up with disputes between co-founders, surprises in how profits and capital are allocated, or a trust structure that doesn’t match how you actually run the business day-to-day.

Below, we break down what unit holders are, what rights and obligations they typically have, and the key legal documents you should be thinking about if a unit trust is part of your business structure.

What Are Unit Holders (And What Is A Unit Trust)?

A unit trust is a type of trust where the beneficial interest in the trust is divided into units, similar to how a company is divided into shares.

The people or entities who hold those units are called unit holders.

In simple terms:

• Unit holders have an interest in the trust (usually a financial interest) based on how many units they hold.
• The trustee is the legal owner of the trust assets and runs the trust.
• The trust deed is the rulebook that sets out how the trust operates, including what unit holders can and can’t do.

Unit trusts are often used in small business for things like:

• Holding business assets (for example, equipment or intellectual property).
• Owning property (including commercial premises used by the business).
• Structuring investment arrangements where different people contribute different amounts of capital.
• Running a family business where profits are distributed in a predictable way.

Unlike some discretionary (family) trusts where beneficiaries don’t have fixed entitlements, unit holders will often have a more clearly defined entitlement (for example, if you hold 30% of the units, you may be entitled to 30% of distributions - depending on what the deed says).

Unit Holders vs Shareholders: What’s The Difference?

It’s tempting to think unit holders are “basically shareholders.” There are similarities, but they are not the same.

• Shareholders own shares in a company. The company is a separate legal entity.
• Unit holders hold units in a trust. A trust is not a separate legal entity in the same way a company is - the trustee holds the assets and enters into contracts on behalf of the trust.

This difference can affect things like control, decision-making, and what happens if there’s a dispute. It also affects what documents you need in place to keep things running smoothly.

How Unit Trusts Work In Small Business (Who Controls What?)

One of the most important things for business owners to understand is this: unit holders usually have an economic interest, while the trustee has legal control - unless the deed (and other documents) say otherwise.

A typical unit trust structure looks like this:

• Trustee: Often a company (a “corporate trustee”) to help with governance and administration, and potentially to help manage risk (depending on how the trust is set up and operated).
• Unit holders: Individuals, companies, or other trusts who hold units.
• Trust deed: Sets out the trust’s powers, limits, and procedures.

Why Many Business Owners Use A Corporate Trustee

In practice, many small businesses prefer a corporate trustee because it can simplify administration and help separate the trustee role from individuals involved in the business. Rather than an individual personally signing contracts as trustee, the company does so in its trustee capacity.

That said, whether this improves asset protection or limits liability will depend on the broader setup (including the deed, how contracts are signed, whether guarantees are given, and whether director duties or other personal liabilities apply).

Ultimately, the “right” setup depends on what you’re trying to achieve (asset holding, business trading, raising funds, family arrangements, or all of the above).

What Do Unit Holders Actually “Own”?

Unit holders don’t typically own the trust’s assets directly. Instead, they own units that give them rights set out under the deed - usually rights to:

• receive distributions (income and/or capital), and
• be involved in certain major decisions (if the deed requires unit holder approvals for those decisions).

This is why the trust deed is so critical. Two unit trusts can look similar from the outside, but operate very differently depending on how the deed is drafted.

Key Rights Of Unit Holders (What You’re Usually Entitled To)

A unit holder’s rights should be treated like a commercial asset - because they are. But the exact rights you have (or that you’re giving to others) will depend on the trust deed and any other agreements in place.

That said, the most common rights of unit holders include the following.

1. Right To Distributions (Income And/Or Capital)

Many unit trusts are set up so distributions are made in proportion to units held. For example, if you hold 50% of the units, you may receive 50% of the distributable income.

However, do not assume this is automatic. You should check:

• how “income” is defined in the deed (trust income can be a technical concept),
• whether distributions are mandatory or at the trustee’s discretion, and
• whether there are different classes of units with different entitlements.

Sometimes distributions can also be made in non-cash form (for example, transferring an asset instead of paying money). If you’re dealing with asset transfers, it’s worth understanding in specie distribution concepts early, because the legal and tax consequences can be significant. (For tax advice, you should speak to a qualified accountant or tax adviser.)

2. Rights To Information And Records

Unit holders commonly have rights to access certain trust information, such as:

• financial statements and reports,
• distribution statements, and
• details about the trust’s assets and liabilities.

These rights are typically set out in the deed (and may also arise under general trust law depending on the circumstances), but the scope varies. For a small business, clear record-keeping is also practical - it reduces the risk of misunderstandings and makes it easier at reporting time, and during financings or exits.

3. Voting Or Consent Rights On Major Decisions

Unit holders may have voting rights on key matters, depending on the trust deed. These might include:

• appointing or removing the trustee,
• amending the trust deed,
• issuing new units (which can dilute existing unit holders),
• winding up the trust, or
• selling key assets.

If your unit trust is being used in a business with multiple founders or investors, it’s important to be crystal clear on which decisions the trustee can make alone, and which decisions require unit holder approval.

4. Rights When Units Are Sold Or Transferred

Units can often be transferred, but there are usually conditions. Your deed (and any separate agreement) may include:

• a right of first refusal (existing unit holders get first chance to buy),
• restrictions on transfers to competitors, or
• requirements for trustee consent.

This matters in the real world when someone wants to exit the business, a relationship breaks down, or you’re bringing in new capital.

Obligations And Risks For Unit Holders (What You Need To Watch Out For)

From a small business owner’s perspective, a unit trust can be a powerful tool - but it’s not “set and forget.” Unit holders can have real obligations and risks, even if they are not running daily operations.

1. Paying For Units (And Ongoing Funding Expectations)

Typically, units are issued in exchange for a payment (or other contribution). If units are not fully paid, or if the trust issues units under staged arrangements, the deed may impose obligations on unit holders to contribute additional amounts.

This is a common source of disputes: one unit holder feels they contributed more (time, money, contacts), while another feels they’re being pressured to fund the trust beyond what was agreed.

If you’re trying to avoid future conflict, it helps to document capital contribution expectations clearly.

2. Being Bound By The Trust Deed (Even If You Didn’t Draft It)

When you become a unit holder, you’re effectively buying into the rules of that trust. If the deed is poorly drafted, outdated, or doesn’t reflect the commercial deal, you may be stuck operating under rules that don’t work for your business.

This is why it’s often worth treating the deed as a core business document - not just an admin formality.

3. Dilution Risk When New Units Are Issued

If the trust issues new units and you don’t participate, your percentage interest can be diluted.

This isn’t always a bad thing - it can be part of raising funds - but it should happen transparently and in line with agreed rules (for example, pre-emptive rights, valuation mechanics, and consent thresholds).

4. Personal Guarantee Risk (Even If You’re “Just” A Unit Holder)

In theory, unit holders are not automatically personally liable for the trust’s debts, because the trustee is the party contracting with third parties.

In practice, lenders and landlords may still ask for personal guarantees - especially for small businesses. If you sign a guarantee, you may be personally on the hook regardless of the trust structure.

If guarantees are on the table, it’s worth understanding personal guarantees and negotiating risk allocation between unit holders (for example, who guarantees what, and whether there’s an indemnity arrangement between unit holders).

5. Tax And Reporting Responsibilities (Indirect, But Real)

While the trustee generally manages the trust’s tax affairs, unit holders are affected by distributions and reporting outcomes.

The big takeaway is: even if you’re not actively managing the trust, you should still understand how distributions work, what you’re entitled to under the deed, and what you may need to report personally. For advice on your specific tax position, you should speak to an accountant or tax adviser.

If you’re still working out the basics of trust identifiers and registrations, it can help to get clear on trust requirements like ABNs and TFNs. (Registration and reporting requirements can vary depending on the trust’s activities and circumstances.)

What Legal Documents Do You Need To Protect Unit Holders (And Your Business)?

If you’re using a unit trust as part of your business structure, strong documentation is what keeps the arrangement workable when things change - because business conditions always change.

Here are the key documents that usually matter most.

Trust Deed

The trust deed sets out:

• the trustee’s powers and limits,
• how units are issued and transferred,
• distribution rules (income and capital), and
• governance rules (meetings, voting thresholds, dispute steps).

Because the deed is the foundation, it’s important it matches the commercial deal between unit holders - not just what a generic template assumes.

Unitholders Agreement

In many small business unit trusts, you’ll also want a separate Unitholders Agreement.

This is similar in spirit to a shareholders agreement. It helps capture the practical business arrangements that may not sit neatly in the trust deed, such as:

• who makes which decisions day-to-day,
• what happens if a unit holder wants to exit,
• valuation methods for buyouts,
• deadlock and dispute resolution processes, and
• confidentiality and restraint expectations (where appropriate).

If your trust is being used for a trading business (not just passive asset holding), this kind of agreement can be the difference between a smooth working relationship and an expensive dispute later.

Company Constitution (If You Have A Corporate Trustee)

If your trustee is a company, you may need a Company Constitution (or you may rely on replaceable rules, depending on the setup).

The constitution governs how the trustee company operates - which matters because the trustee company is the party actually signing contracts, opening bank accounts, employing staff, and managing assets.

Service/Operations Documents (Especially For Trading Businesses)

A trust structure doesn’t remove the need for strong commercial contracts. Depending on your business, that may include:

• customer terms and conditions,
• supplier agreements, and
• employment contracts and policies (if you hire staff).

If you operate online or collect personal information (even just email addresses for marketing), you should also consider a Privacy Policy as part of your compliance and customer trust-building.

Related Trust Concepts (Where People Get Mixed Up)

Not every trust is a unit trust, and the terminology can overlap. For example, you might also come across bare trusts in property or financing scenarios. If you’re comparing structures, it can help to understand bare trusts so you’re choosing the right tool for the job.

Key Takeaways

• Unit holders are the people or entities that hold units in a unit trust, usually giving them defined financial entitlements and certain governance rights under the trust deed.
• In a unit trust, the trustee holds legal ownership of trust assets and runs the trust, so understanding “who controls what” is essential before you bring in co-owners or investors.
• Common unit holder rights include distributions, access to information, consent rights on major decisions, and rights around unit transfers - but the details depend heavily on the deed.
• Unit holders can still face real risks, including dilution, funding disputes, and personal exposure if they sign guarantees or take on contractual obligations.
• The best protection is usually strong documentation: a well-drafted trust deed and (in many business setups) a tailored Unitholders Agreement to set expectations clearly.
• If your structure includes a corporate trustee, make sure the trustee company’s governance (including its constitution) matches how you plan to operate the trust.

If you’d like help setting up a unit trust or putting the right documents in place for your unit holders, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.