Unitholder

What is a unitholder?

A unitholder is an investor who owns one or more units in an investment trust or a master limited partnership (MLP). A unit is similar to a share and represents an ownership interest in the underlying pool of assets. The rights and obligations of unitholders are set out in the trust or partnership agreement.

Unit trusts and how they work

Unit trusts pool money from multiple investors to buy a diversified portfolio of assets, which can include:
* Stocks (large-cap, small-cap, domestic, international)
* Bonds (investment-grade, high-yield, emerging-market, tax-free)
* Real estate and other securities

Units can usually be traded, but unit trusts tend to be less liquid than exchange-traded funds (ETFs). The trading price of a unit may differ from its net asset value (NAV).

Master limited partnerships (MLPs)

MLPs are publicly traded partnerships, most commonly found in the energy sector (e.g., pipelines). They combine the operational structure of a partnership with public trading and often deliver attractive cash distributions. Key characteristics:
* Tax advantages for partners due to pass-through treatment of income, gains, losses, deductions, and credits
* Often appeal to investors seeking high income yields
* Unitholders may receive a Schedule K-1 reporting their share of partnership items

Rights and differences from shareholders

Unitholders may have voting or other governance rights, but these are typically more limited than the rights of corporate shareholders. The degree of control depends on the trust or partnership agreement.

Taxation

Tax treatment depends on the vehicle:

Unit trusts (taxable accounts)
* Interest, dividends, and distributed capital gains are taxed to unitholders.
* Tax reporting is typically done on Form 1099 (e.g., 1099-INT or 1099-DIV).

MLPs
* Each unitholder receives a Schedule K-1 detailing their share of income, gains, deductions, losses, and credits.
* Taxes are assessed on a pass-through basis: unitholders pay tax on their allocated share of the partnership’s taxable income whether or not cash was distributed.
* Net losses can generally be carried forward but are typically usable only against future income from the same MLP.

Pass-through deduction
* The Tax Cuts and Jobs Act introduced a qualified business income (Section 199A) deduction that may allow non-corporate taxpayers to deduct up to 20% of qualified pass-through business income, subject to specific rules and limitations.

Example

An investor buys units of a real estate investment trust (REIT). The investor gains exposure to the REIT’s property portfolio and receives distributions. For tax purposes, the income from those units is treated as pass-through income and reported on the appropriate tax forms (e.g., 1099 for many trusts, K-1 for partnerships).

Key takeaways

• A unitholder owns units in a unit trust or MLP, which are similar to shares but governed by trust/partnership agreements.
• Unit trusts pool investor capital to hold diversified assets; MLPs are commonly used in energy and offer pass-through tax treatment.
• Units can be traded, but trusts may be less liquid and trade at prices that diverge from NAV.
• Tax reporting differs by structure: Form 1099s for many unit trusts and Schedule K-1s for partnerships; MLP income is reported and taxed on a pass-through basis.
• The Section 199A deduction may reduce taxable pass-through income for eligible non-corporate taxpayers.