What it is:
How it works (Example):
Why it Matters:
Unitholders and shareholders have different names because each is holding a different type of asset and has a different set of rights. For example, though unitholders possess some voting rights, those rights are often more limited than those of corporate shareholders.
Another difference is in the tax treatment of distributions made to unitholders versus shareholders. Distributions received by unitholders are designated as pass-through income. Pass-through income has not been taxed at the company level -- it is only taxed at the individual level. Shareholders receive dividends out of income that has already been taxed at the corporate level, and then shareholders must pay individual income tax on top of that, leading to the controversial event known as double taxation.