What are the main differences between a company and a unit trust?

Companies and unit trusts are both viable legal structures for your business operations. They each have their own advantages and disadvantages. These are the basics:

Company

  • Highly regulated - must be registered through ASIC, submit any changes and conduct an annual review. The company is also subject to the Corporations Act 2001 (Cth) 
  • A company becomes a separate legal entity
  • Limited liability - if the company becomes insolvent the personal wealth and assets of the directors and shareholders is not affected
  • A company can make a profit. This does not need to be distributed to shareholders annually. It can be held and invested by the company
  • Shareholders do not have a direct interest in the assets of the company
  • Control of a company lies with its directors
  • Company can exist forever - provided it is maintained

 Unit Trust

  • Created via private agreement (not through ASIC)
  • Less regulation that a company (not subject to Corporations Act nor regular updates with ASIC)
  • Units in the trust are very similar to shares in a company - represent a proportionate interest
  • Units are easily transferable, again by private agreement, not through lodgement with ASIC
  • Not a separate legal entity
  • A unit trust cannot make money/profit. At the end of each year it must be distributed to unit holders proportionate to the amount of units held
  • 50% discount on Capital Gains if assets are distributed after one year
  • High liability - assets are not protected. In the event of a beneficiary becoming bankrupt, trust assets may be sold to make repayments.
  • Easier to wind up than a company
  • Control of the unit trust rests with the trustee, who has wide powers of investment
  • Unit holders have a proprietary interest in the trust assets
  • The trustee has no discretion - must allocate profits/assets according to the units held
  • Trusts don't live forever - will vest after 80 years if not before - Rule Against Perpetuities

This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.

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