A unit trust is designed to hold assets and distribute profits to individual unit owners. This is instead of reinvesting the profits back into the trust. A unit trust is ideal for holding property or land that is not considered the principal place of business for a business.
In the case of a unit trust, trustees monitor the fund manager to ensure that the trust is managed according to the terms of the trust deed and that it adheres to the investment objectives described in the trust deed.
Unit holders are the owners of the rights of the trust’s assets. The total value of a unit portfolio is made up of the total value of each unit. Each unit does not necessarily share the same value.
While a trust can be created through oral or implied conduct, it is more ideal to create a trust through the establishment of a trust deed. The trust deed details the terms under which the trust will be run and, in most cases, the responsibilities of the various individuals participating in the trust. A trust deed can also be used after the establishment of the trust to resolve disputes that arise as the business is being carried on.
Individuals participating in the business will need to follow laws relating to their business field. For example, an electrician carrying on a business will need to be licensed. It is important that before starting any business, the founders are aware of these stipulations to avoid disputes later.
If the business is being carried on under any name other than that of the full name of its founders, then the name needs to be registered with ASIC. This is a simple and inexpensive process but still required in Australia.
An Australian Tax File Number (TFN) is a personal reference number for taxation purposes. While a TFN is not required for personal use, but the tax fees are substantially higher without one. Furthermore, without a TFN it becomes impossible to obtain an Australian Business Number.
Every business after July 2000 is required to have an Australian Business Number (ABN) [Link to a ABN Application page], which can be attained through the Australian Taxation Office (ATO).
If the business has a GST turnover of $75,000 or more a year in income, the they are required to register their business for GST.
A group of individuals want to enter the share market together. They each invest $10,000 in the fund. The combined fund allows them to take advantage of areas of investment that they would not have been able to gain access to without combining their money. Furthermore, they are able to diversify, which makes their investment safer. The individuals create a unit trust to be managed by a fund manager and name themselves trustees so that they are able to guide the unit trust towards their own goals. In addition, they are also the unit holders and hold a number of units with the same net value as each other. This means that if one decides to drop out, that person can sell their units and leave the trust without affecting the others.Example 2:
Jason is a developer who wants to develop a piece of land. He creates a unit trust and invites investors to invest capital in the trust. Jason takes on the position as trust manager and creates units for each of his investors equal to the amount of capital they invested. This allows Jason the opportunity to develop the land with a level of capital that he would not have had access to otherwise. When Jason has finished developing the land, the investors can redeem their unit shares and gain property at the end of the transaction.