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

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Updated — Sep 7, 2015