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To secure your company, contracts are one of the most important tools at your disposal. They cement your rights, lay down the ground rules and determine what happens when there’s a disagreement.
You’ve likely already heard of the contracts that are commonly used by companies. For instance, a Shareholders Agreement or a Unitholders Agreement.
But what about a Shareholders and Unitholders Agreement?
If your company needs to solidify an agreement between company owners and owners of a unit trust, then it’s best to get this in writing by a well drafted Shareholders and Unitholders Agreement.
Let’s discuss what this means in more detail below.
Shareholders Vs Unitholders: What’s The Difference?
Shareholders and unitholders both hold ownership rights, however the way their ownership is structured varies greatly from one another. Essentially, shareholders and unitholders will operate differently when it comes to matters such as governance, legal duties, taxation and control.
Shareholders are investors that own equity in the company, whereas unitholders may not have such ‘direct’ ownership of the company. Instead, they have unit shares as a trustee of the company. Rather than direct ownership, they receive benefits flowing from the company.
Shareholders often have voting rights as well as legal duties and liabilities when it comes to the company, enshrined in the Corporations Act 2001. A unitholder might be able to vote, however this right isn’t cemented by any corporate laws like a shareholder, and depends largely on the content of the Trust Deed, a legal document that is set up at the time the trust is established.
So, even though both unit holders and shareholders technically claim some level of ownership in the company, their type of ownership differs greatly from one another.
Can A Company Have Both Unitholders And Shareholders?
Despite their differences, it is possible for shareholders and unitholders to exist under the same roof. This isn’t typical for most companies however, it’s not unheard of either.
A company is a legal entity on its own. Ownership of a company is generally determined by shareholders. Trusts on the other hand, aren’t necessarily separate legal entities. Rather, trusts have beneficiaries and might be controlled by a nominated party.
As a result, shareholders and unitholders are more often than not seen in completely different contexts. However, it is not impossible for certain company structures to allow both shareholders and unitholders to coexist.
In some instances, they can come together if the type of company allows it. Specific company structures such as a Managed Investment Scheme (MIS) are set up in a way where ownership of the company is retained by both shareholders and unitholders.
If you’re thinking of setting up a company with both shareholders and unitholders, then it’s a good idea to get the help of a legal expert. Setting up a unique company structure can be a bit complex and you want to make sure you’re following all the rules and regulations set by ASIC and ATO. After all, the foundations for your company will likely be a pretty big factor in its future success – getting this part right is instrumental.
A legal expert who knows what they’re doing can help make this process a lot simpler, so get in touch with one of us today.
Why Do I Need A Shareholder And Unitholders Agreement?
A Shareholders and Unitholders Agreement is just as crucial as properly setting up your company. As with all company and business set ups that involve more than one person – it’s important to get everything in writing.
A Shareholders and Unitholders Agreement covers crucial matters such as dispute resolution, what happens when someone wants to leave the company, how decisions are made plus so much more. You might be thinking, “we’ve got all this covered and we’re all already on the same page”. However, no matter how great a relationship starts off, having a well drafted legal agreement in place is essential if you want to maintain that strong relationship throughout running a company.
It’s easy for miscommunication to happen which results in a misunderstanding. From there, things can go downhill pretty fast. Often, a lot of disputes can be prevented if some ground rules had been properly laid out from the start. If you’re running a company with both unitholders and shareholders, then protect your company and the interests of all parties by getting an expertly drafted Shareholders and Unitholders Agreement. It’s an investment worth making.
Next Steps
A unitholders and shareholders agreement is essential if you’re running a company that has both types of owners. To summarise what we’ve discussed:
- Contracts, including Shareholders and Unitholders Agreements, are vital for securing company rights, rules, and dispute resolution
- Shareholders and Unitholders Agreements are necessary when solidifying agreements between company owners and unit trust owners
- Shareholders hold direct equity ownership, while unitholders hold unit shares as trustees, with different rights and duties
- Although unusual, companies can have both shareholders and unitholders, typically seen in specific structures like Master Limited Partnerships
- Legal expertise is essential when setting up such complex company structures to ensure compliance with regulations
- Shareholders and Unitholders Agreements cover critical matters like dispute resolution, leaving the company, and decision-making processes
- Having a well-drafted agreement is crucial for preventing disputes and maintaining strong relationships among company owners
If you would like a consultation on shareholders and unitholders agreements, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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