I Have a Unit Trust: Do I Need a Unitholders Agreement?

If you have a unit trust, it is easy to assume the trust deed covers everything. That is one of the most common mistakes founders make. Another is relying on verbal understandings between business partners about who can sell units, who controls decisions, or what happens if one person wants out. A third is signing a trust deed prepared for a basic investment arrangement, then using the trust as a trading or asset-holding vehicle without adding rules that fit real business relationships.

If your unit trust has more than one unitholder, a unitholders agreement is often the document that fills the gaps between legal ownership and day to day expectations. It can set the rules for voting, transfers, deadlocks, information rights, funding, and exit plans before a dispute starts. That matters most before you sign, before you rely on a verbal promise, and before you spend money on setup or acquisitions through the trust.

This guide explains when a UK business using a unit trust should consider a unitholders agreement, what issues it should cover, and where founders usually get caught out.

Overview

A unit trust can work well for holding investments, property, or business assets, but the trust deed usually does not deal with every commercial issue between unitholders. A separate unitholders agreement is often worth having where there are multiple investors, active decision-makers, unequal contributions, or a realistic chance that someone may want to transfer or redeem their interest later.

The main question is not whether the law forces you to have one in every case. The real question is whether your current documents clearly deal with the points that tend to trigger disputes.

What rights each unitholder has, and whether voting rights match unit holdings
Who controls the trustee, and how key decisions are approved
Whether units can be transferred, redeemed, or offered to outsiders
How extra funding is provided if the trust needs more money
What information unitholders are entitled to receive
How disputes, deadlocks, defaults, and exits are handled
How the agreement fits with the trust deed, subscription documents, and any finance documents

What I Have a Unit Trust Means For UK Businesses

If you have a unit trust in the UK, the legal position usually starts with the trust deed, but the practical position often needs more than that. A unitholders agreement is not mandatory in every case, yet it is commonly the document that makes a multi-party arrangement workable.

A unit trust is a trust where beneficiaries hold units representing their interest in the trust property. The trustee holds legal title to the assets, while the unitholders hold beneficial interests according to the terms of the deed. In business terms, it can be used to hold property, investments, joint venture assets, or other commercial interests.

That structure creates a few immediate questions. The trustee may be the legal owner, but who really controls the direction of the trust? If there are several unitholders, do they all have equal input? If one investor contributes more cash but another contributes business relationships or management time, where is that reflected?

This is where founders often get caught. They assume the deed, subscription paperwork, and a few emails are enough. Later, when someone wants to sell units, appoint a new trustee, block a distribution, or force a sale of an asset, they discover the paperwork is either silent or internally inconsistent.

What a unitholders agreement usually does

A unitholders agreement is a contract between some or all of the unitholders, and sometimes the trustee or related entities, setting out how the arrangement will operate in practice. It is similar in function to a shareholders agreement, but tailored to a unit trust structure.

It often deals with matters such as:

decision-making thresholds for routine and major matters
restrictions on transferring units
pre-emption rights if a unitholder wants to sell
drag-along and tag-along rights in sale scenarios
capital contributions and funding obligations
default rules if a unitholder fails to pay money when required
confidentiality obligations
access to accounts and reports
dispute resolution and deadlock procedures
exit mechanisms and valuation methods

For some trusts, especially where there is one unitholder and a passive asset holding arrangement, a separate agreement may not add much. For others, especially where multiple business owners are involved, not having one can create expensive uncertainty.

When it is more likely to be needed

You are more likely to need a unitholders agreement where:

there is more than one unitholder
the unitholders are contributing different amounts of money or assets
some unitholders are active in management and others are passive investors
the trust is part of a joint venture
units may be sold, redeemed, or transferred in future
the trust is borrowing money or entering significant contracts
there is a corporate trustee controlled by one or more of the parties
you want to avoid arguments about control, reporting, or exits

The more commercial moving parts you have, the more useful it is to document the relationship properly before you sign and before expectations drift apart.

Trust deed versus unitholders agreement

The trust deed remains central because it creates the trust and governs the trustee's powers and duties. A unitholders agreement should work with it, not contradict it.

If the trust deed says one thing and the agreement says another, the result can be messy. The trustee may be bound by the deed, while the unitholders may only have contractual rights against each other under the agreement. That means the documents need to be reviewed together. A badly drafted agreement can give parties a false sense of security if the deed does not allow the arrangement to operate as promised.

For UK businesses, that is often the real drafting job, making sure the trust deed, trustee constitution if there is a corporate trustee, subscription terms, and the unitholders agreement all point in the same direction.

Legal Issues To Check Before You Sign

Before you sign a unitholders agreement, make sure it answers the real commercial questions in your arrangement and matches the trust deed. The main risk is not just leaving a point out. It is leaving it half-covered across several documents.

Decision-making and control

You need clear rules about who can decide what. If the trustee is a company, control of that company may matter just as much as the units themselves.

Check whether the documents deal with:

ordinary decisions versus reserved matters
voting thresholds for major transactions
appointment and removal of the trustee
appointment of directors of any corporate trustee
who can approve borrowing, asset sales, or changes to the business plan
whether unanimous consent is needed for certain decisions

This is especially important where one party holds a majority of units but another expects to have veto rights over major issues. If that expectation is not written down properly, it may not be enforceable in the way you expect.

Transfer of units and exit rights

If a unitholder wants out, the documents should say how that happens. Without clear transfer rules, a founder can end up in business with an outsider they never chose, or a departing investor can find they have no practical route to exit.

Good agreements often cover:

restrictions on transfer
pre-emption rights for existing unitholders
permitted transfers to related entities
valuation methods
payment terms for buyouts
drag-along rights on a sale of the whole venture
tag-along rights for minority protection
events triggering compulsory transfers, such as insolvency or serious breach

These clauses matter before you rely on a verbal promise like, “we will sort the price out later”. That is exactly the kind of issue that turns into a dispute when relationships cool.

Funding and further contributions

Many trusts need more money after the initial setup. If the agreement does not explain how extra funding works, the parties can end up stuck.

Key questions include:

are unitholders obliged to contribute more capital if asked
what happens if one party contributes and another does not
can the trustee borrow instead
does non-participation dilute a unitholder's interest
are loans from unitholders allowed, and on what terms

This is a classic founder problem. One party thinks future support is optional, another thinks it is part of the deal, and the documents do not settle it.

Distributions and income expectations

Unitholders often assume distributions will follow a simple percentage split, but the deed and agreement may create a more nuanced position. You should check who decides when distributions are made, whether reserves can be retained, and whether different classes of units carry different rights.

Where one investor expects regular income and another wants profits reinvested, that tension should be resolved on paper before you sign.

Information rights and transparency

Passive investors usually want access to meaningful information, while active managers often want practical limits on what must be provided and how often. A good agreement balances both.

It should usually set out:

what financial information must be given
how often reports are provided
whether budgets or business plans must be shared
inspection rights for books and records
confidentiality restrictions on shared information

If the trust holds sensitive commercial assets, confidentiality language matters just as much as access rights.

Deadlock and disputes

If the parties can block each other on key issues, you need a deadlock mechanism. Otherwise the trust can grind to a halt while costs keep rising.

Deadlock provisions may include:

escalation to senior decision-makers
mediation
buy-sell mechanisms
agreed sale processes for trust assets
temporary status quo arrangements while negotiations continue

Not every disagreement needs a dramatic forced sale clause. But some process is usually better than silence.

Defaults, breach and enforcement

The agreement should say what happens if someone breaches it. For example, if a unitholder fails to fund a required contribution or breaches a transfer restriction, the consequences should be clear.

Possible consequences include:

suspension of voting rights
forced transfer provisions
price adjustments on exit
indemnities in appropriate cases
dispute resolution steps before court action

Remedies depend on the drafting and the facts. You should not assume that a breach automatically lets you cancel the arrangement or recover all losses without question.

Interaction with finance, property and other contracts

If the trust owns property, has bank debt, or is part of a wider group structure, your agreement needs to fit those arrangements too. Lenders may require consent rights. Property documentation may affect what the trustee can do. If there is a joint venture agreement or management agreement running alongside the trust, terms must be aligned.

This is why a contract review matters before you accept the provider's standard terms or use a template borrowed from a different deal.

Common Mistakes With I Have a Unit Trust

The most common mistake is assuming the existence of a unit trust answers the governance question. It does not. A trust structure tells you where beneficial interests sit, but not always how the people behind those interests will behave when money, control, or timing become contentious.

Using only the trust deed

Many businesses rely on a trust deed that was drafted to establish the structure, not to manage a live relationship between multiple owners. The deed may be perfectly valid and still be commercially incomplete.

If you have more than one unitholder, ask whether the deed really covers transfers, deadlock, funding, information rights, and exit pricing in a practical way. Often, it does not.

Copying a shareholders agreement without adapting it

A unit trust is not a company. Clauses borrowed from a shareholders agreement can be useful, but they need to be adapted to the trustee, the trust deed, and the mechanics of units rather than shares.

Founders sometimes copy language about directors, dividends, and share capital without properly dealing with trustee powers, trust distributions, or beneficial interests. That can create confusion at exactly the wrong time.

Leaving control of the corporate trustee unclear

Where a company acts as trustee, control of that company can decide everything in practice. If one person controls the board or shareholding of the trustee company, they may effectively control trust decisions unless the documents limit that power.

This is where founders often get caught. They negotiate unit percentages carefully but ignore who appoints the trustee's directors.

Failing to document future funding expectations

People are often optimistic at the start. They assume everyone will contribute more money if needed. Later, the trust needs cash for a property repair, a refinance condition, or an acquisition opportunity, and one party refuses.

If you expect future funding, put the mechanism in writing before you spend money on setup or commit the trust to obligations.

Ignoring exit planning

Businesses rarely fail because everyone stayed aligned forever. Problems usually appear when circumstances change. Someone wants liquidity, someone retires, someone gets into financial trouble, or a third party offers to buy in.

If your documents do not say how a sale or transfer works, the negotiation starts from scratch under pressure. That is expensive and often personal.

Relying on informal side arrangements

Emails, text messages, and verbal assurances can create confusion, but they are a poor substitute for a signed agreement. If there is a side understanding about priority returns, management involvement, or who has the final say on a major asset sale, it belongs in the formal documents.

Before you rely on a verbal promise, ask whether it still makes sense if the relationship becomes strained, if a lender asks for evidence, or if a new adviser reads the file cold in two years.

Not reviewing the whole document set together

A unitholders agreement does not sit alone. The trust deed, trustee constitution, subscription letters, finance documents, property paperwork, and any side arrangements should be checked together.

The main risk is contradiction. One document may promise a veto right that another document makes impossible to exercise. Another may permit a transfer that the trust deed restricts. Those mismatches are much easier to fix before you sign.

FAQs

Is a unitholders agreement legally required for every unit trust in the UK?

No. There is not a blanket rule requiring every unit trust to have one. But if there are multiple unitholders, investment terms, control issues, or likely exit events, it is often sensible to have a separate agreement.

Is the trust deed enough on its own?

Sometimes, but not always. A trust deed may establish the structure without dealing clearly with commercial matters such as transfer rights, deadlock, funding obligations, or practical governance.

What is the difference between a trust deed and a unitholders agreement?

The trust deed creates and governs the trust, including the trustee's powers and the nature of unit interests. A unitholders agreement is a contract that sets out how the unitholders will deal with each other and, where relevant, with the trustee in practice.

Can a minority unitholder protect their position in a unit trust?

Yes, if the documents are drafted properly. Protections may include veto rights on major decisions, information rights, tag-along rights, pre-emption rights, and clear valuation mechanisms on exit.

When should I get the documents reviewed?

You should get them reviewed before you sign, before you accept the provider's standard terms, and before you rely on a verbal promise about control, funding, or exits. Early review is usually far cheaper than fixing a dispute later.

Key Takeaways

If you have a unit trust, a unitholders agreement is not always mandatory, but it is often worthwhile where multiple parties are involved.
The trust deed and unitholders agreement should be reviewed together so they do not conflict.
The most important areas to cover are control, voting, transfers, funding, distributions, information rights, deadlock, defaults, and exits.
Founders often get caught by informal promises, copied templates, and unclear control of a corporate trustee.
The best time to fix these issues is before you sign, before you spend money on setup, and before the relationship becomes strained.

If you want help with a trust deed review, transfer and exit clauses, voting and control rights, or deadlock provisions, you can reach us on 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.