Unit Trust Vs Company: Which Structure Is Best In Australia?

Choosing the right structure is one of the biggest early decisions you’ll make as a business owner. It affects how you raise capital, what you pay in taxes, your personal risk, and how easy it is to bring in partners or sell your stake later.

Two popular options in Australia are the unit trust and the proprietary limited company. Each has clear pros and cons. The right choice comes down to your goals, who’s involved, and how you plan to grow.

In this guide, we’ll break down unit trust vs company in plain English, so you can confidently decide what fits your situation-and set things up properly from day one.

What Is A Unit Trust?

A unit trust is a type of trust where beneficiaries hold “units” (a bit like shares) that give them a proportional entitlement to trust income and capital. A trustee (either an individual or a company) legally owns and manages the trust property for the benefit of those unitholders, according to a trust deed.

In practice, many small businesses use a unit trust to hold business assets and distribute profits to unitholders (often family members, co-owners, or investors). Distributions can be made to unitholders in proportion to their units, which can offer flexibility for tax planning with professional advice.

If you’re new to trusts, it helps to understand the building blocks-like the role of the trustee, appointor and settlor, and key registrations such as ABN, TFN and (where relevant) ACN. Our overview of trust requirements covers those basics.

What Is A Company?

A company (usually a proprietary limited or “Pty Ltd”) is a separate legal entity registered with ASIC. It can enter contracts, sue and be sued, and owns assets in its own name. Shareholders own the company through shares, and directors manage day-to-day control.

This separation is powerful. If the company incurs debts or is sued, shareholders’ personal assets are generally protected beyond what they’ve invested, provided directors have met their duties. A clear Company Constitution and a Shareholders Agreement set the rules for decision-making, dividends, exits and dispute resolution.

Companies are common for growth-focused ventures because they make it easier to issue new shares, onboard investors and run employee equity plans. If you’re looking to move quickly on incorporation, our Company Set Up service can get you registered and compliant.

Unit Trust Vs Company: Key Differences For Small Businesses

Here’s how unit trusts and companies typically compare on the points that matter most to founders and small business owners.

1) Ownership And Control

• Unit trust: Unitholders have beneficial interests (by units) and the trustee makes decisions under the trust deed. A corporate trustee is common for asset protection and continuity.
• Company: Shareholders own the company, directors manage it. A constitution and Shareholders Agreement set the governance “rules of the game”.

2) Liability And Asset Protection

• Unit trust: Liability sits with the trustee. If you use an individual trustee, you could put personal assets at risk. A corporate trustee can provide a layer of protection, but directors still need to meet their duties.
• Company: Limited liability for shareholders, which is a key reason many businesses incorporate. Directors’ duties and personal guarantees can still create personal exposure in some scenarios.

3) Tax Treatment

• Unit trust: Generally a flow-through structure-trust income is distributed to unitholders, who are taxed at their own marginal rates. This can allow some flexibility in how income is allocated (subject to the deed and tax law). Get accountant advice to do this properly.
• Company: Profits are taxed at the company tax rate (often the base rate for small businesses) and then franked dividends may be paid to shareholders. Retaining profits in the company for reinvestment can be attractive for growth.

4) Funding And Bringing In Investors

• Unit trust: You can issue more units, but investor familiarity varies. Some institutional or sophisticated investors prefer companies for clarity and exit options.
• Company: Widely understood by investors, with established mechanisms for share issues, option plans and convertible notes. It’s generally easier to structure employee equity and future capital raises.

5) Exit And Succession

• Unit trust: Transfers of units are governed by the trust deed and may require consents. Winding up or restructuring can be more complex.
• Company: Share transfers are familiar and often simpler, and companies typically fit better with common exit paths (partial sell-down, full sale or merger).

6) Administration And Compliance

• Unit trust: You’ll maintain a trust deed, trustee records and tax registrations; if using a corporate trustee, you’ll also have ASIC obligations for the corporate entity.
• Company: ASIC reporting, director duties and company registers are ongoing (but streamlined if you have solid systems from the start).

When Should You Choose Each Structure?

While there’s no one-size-fits-all answer, these scenarios can help you decide.

Choose A Unit Trust If:

• You want a flexible, flow-through structure where income can be distributed to unitholders (with professional tax guidance).
• You’re setting up a joint venture or property-focused venture where a trust is industry standard.
• You prefer a separation between control (trustee) and beneficiaries, with the deed setting detailed rules.
• You’re pairing a unit trust with a corporate trustee to improve asset protection while keeping distribution flexibility.

For a deeper look at how trusts can support asset protection and planning, read our guide to trusts in Australia.

Choose A Company If:

• You want limited liability and a structure that investors, lenders and suppliers recognise.
• You plan to scale, raise capital or offer employee equity-companies handle this cleanly.
• You want to retain profits in the entity to fund growth at the company tax rate.
• You prefer clear governance with a constitution and Shareholders Agreement to manage roles, dividends and exits.

If you’re thinking ahead to special-purpose structures for a specific project or financing, our explainer on SPVs in Australia can be useful context.

Setup Steps, Documents And Ongoing Obligations

Whichever path you choose, the setup should be intentional and well-documented so it’s easy to run and scale. Here’s a practical checklist.

Setting Up A Unit Trust

1. Plan your structure: Decide who will be the trustee (individual or corporate), who holds units, and how distributions should work.
2. Draft the trust deed: This is the rulebook. It covers powers of the trustee, unit rights, income distribution, transfers and more. Get it drafted and tailored to your goals.
3. Establish the trust: Settle the trust (usually with a nominal amount from a settlor who is not a beneficiary) and execute the deed correctly.
4. Register tax details: Apply for the trust’s TFN and ABN (and GST if required). If you have a corporate trustee, manage ASIC registrations for that company as well.
5. Govern your investors: If there are multiple unitholders, put a Unitholders Agreement in place. This complements the deed and sets out decision-making rules, unit transfers, dispute resolution and exit terms.
6. Open bank accounts, set up accounting and keep records. Ensure trustee resolutions and distributions are properly documented each year.

Setting Up A Company

1. Confirm the basics: Directors, shareholders, share classes and the company name. If any director is overseas, remember Australia has resident director requirements.
2. Register the company: Lodge with ASIC (Pty Ltd). Obtain your ACN, then apply for ABN and TFN (and GST if required). Our Company Set Up service can handle this end-to-end.
3. Adopt governance documents: Put in place a Company Constitution and a robust Shareholders Agreement covering roles, board decisions, dividends, exits and restraints.
4. Issue shares and update registers: Issue initial shares, record them in the share register, and keep ASIC records up to date.
5. Open bank accounts and accounting systems, and set up board processes for compliant decision-making and record-keeping.

Essential Legal Documents To Consider

• Trust Deed (for unit trusts): Governs how the trust operates, distributions, trustee powers and unit transfers.
• Unitholders Agreement (for unit trusts with multiple investors): Sets rules for governance, pre-emptive rights, disputes and exits, complementing the deed. See Unitholders Agreement.
• Company Constitution (for companies): The company’s internal rulebook, working alongside the Corporations Act. See Company Constitution.
• Shareholders Agreement (for companies with more than one shareholder): Covers ownership rights, founder vesting, leaver provisions, dividends, restraints and dispute resolution. See Shareholders Agreement.
• Commercial Contracts: Customer terms, supplier agreements, service agreements and any IP licences that define how you do business-and protect cashflow.
• Employment Agreements and Policies: If you hire staff, you’ll need compliant employment contracts and workplace policies aligned with Fair Work obligations.
• Privacy Policy: Required if your business collects personal information, especially online.

Ongoing Compliance: Don’t Set And Forget

• For unit trusts: Keep trustee minutes, distribution resolutions and unit registers up to date. If a corporate trustee is used, maintain ASIC compliance for that company.
• For companies: Maintain company registers, lodge ASIC changes, hold board/shareholder meetings as required, and ensure directors meet their duties at all times.
• For both: Stay on top of tax filings, BAS/GST registrations where applicable, and Australian Consumer Law (ACL) obligations when dealing with customers, advertising and refunds.

If you’re exploring more complex structures for specific projects or financing rounds, a dedicated special purpose vehicle or a holding company can sometimes make sense.

It’s also common for founders to hold shares through a trust for succession or planning reasons. Our explainer on beneficially holding shares through a trust unpacks how that works at a high level.

Key Takeaways

• A unit trust is a flow-through structure managed by a trustee, with income distributed to unitholders; a company is a separate legal entity owned by shareholders and managed by directors.
• Companies offer limited liability and are often preferred by investors; unit trusts can provide distribution flexibility and are common for some joint ventures and asset-holding scenarios.
• Your choice should reflect your goals: funding plans, risk profile, tax strategy, governance preferences and exit pathways.
• Get the right documents in place early-trust deed and a Unitholders Agreement for unit trusts; constitution and a Shareholders Agreement for companies-so control, profits and exits are clear.
• Whichever structure you choose, build good governance habits and stay compliant with ASIC, tax and customer law obligations from the start.

If you’d like a consultation on whether a unit trust or a company is right for your small business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.