Royalty Units
Categories: Metrics
We were watching a biography about an olden-times royal family, and at one point during the show, our royal couple gave birth to twins. Our friend then turned to us and said, “There are two extra royalty units to feed.” We gave her a weird look, because that’s, um...not what royalty units are.
“Royalty units” are investment units in a royalty trust. They’re kind of like shares, but since royalty trusts are a little different than ordinary company stock, we call them units instead. We see royalty trusts most often in the energy and real estate industries. A royalty trust is basically a type of corporation that can enjoy a lower tax burden, as long as it distributes roughly 90% of its profits via shareholders.
Basically, it works like this: a mining company makes a bunch of money. It moves a bunch of profits into the royalty trust. The royalty trust distributes 90% or more of it to shareholders every year, and because of this, the trust is taxed at a lower level than your standard corporation. It’s a nice way to protect energy profits while making energy investors happy.
