What is a unit trust?

A unit trust is popularly used as an alternative to a company when creating a legal structure for business activities. A unit trust works thus: unit holders accept or apply for units in the trust in a similar sense to shareholders obtaining shares in a company. A unit holder may contribute to the trust property, which is held by and often invested by the trustee on behalf of the unit holders. 

Trust property can be clearly divided into defined units, such that when the trustee distributes any trust income (as a unit trust cannot make a profit) this can be achieved by allocating profit proportionate the the amount of units held. The trustee has no discretion.

A unit trust is attractive as it is not subject to the same amount of regulation as a company and units are much more easily transferable than shares.

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Updated — Sep 7, 2015