Unitholder

A unitholder is an investor who owns one or more units in an investment trust or master limited partnership (MLP). A unit is equivalent to a share, or piece of interest. Unitholders are afforded specific rights that are outlined in the trust declaration, which governs the trust's actions.

The most common type of unit trust is an investment vehicle that pools funds from investors to purchase a portfolio of assets. These unit trusts invest in many asset classes of stocks (large cap, small cap, domestic, international, etc.), bonds (investment grade, high-yield, emerging market, tax-free, etc.), real estate and other securities. There is a whole spectrum of risk/reward choices for investors in these unit trusts. The unitholder gains exposure to a pool of securities and is free to trade units at any time, though unit trusts tend to be less liquid than, say, an exchange-traded fund (ETF), and the price of the traded unit may not be equivalent to net asset value (NAV) of the unit trust per share.

Unitholders may also have an interest in an MLP, an investment vehicle that offers significant tax advantages to both general and limited partners. Most MLPs are in the energy sector. For example, pipeline companies prefer the MLP structure to offer preferential tax treatment of cash flows to partners and unitholders. Unitholders are attracted by the high-income yields of MLPs.

For unit trusts, unitholders pay income taxes on interest, dividends and capital gains distributed to them if the units are held in a taxable account. IRS Form 1099 is sent by the unit trusts to all unitholders. In the case of MLPs, each unitholder's proportion of income, gains, deductions, losses and credits is reported on Schedule K-1. If the net amount is positive the unitholder pays tax on a pass-through basis whether or not a cash distribution was actually received; if there is a net loss, the amount can be carried forward and used against future income, but only from the same MLP.