DEFINITION of 'Royalty Units'

An ownership unit in a royalty trust. A royalty unit gives the unit holder a stake in the income generated by the holdings of the trust. A royalty trust takes ownership stakes in operating companies or in their cash flows. The royalty trust owns the income or cash flow that the company generates and passes this income on to the royalty unit holders of that trust. Royalty units are seen as an attractive investment because the income generated by the assets is subject to taxes at the individual level, rather than the double taxation which is seen with dividends on common stock.

BREAKING DOWN 'Royalty Units'

For example, let's say that an investor holds a royalty unit in ABC Oil & Gas Royalty Trust, which owns several oil-producing operations. The investor in the royalty trust will receive income distributions as the underlying oil-producing operations generate income for the trust. If the trust's assets generate $1 million dollars and there are 100,000 royalty units, each unit will receive $10.

RELATED TERMS
  1. Royalty Income Trust

    A type of special-purpose financing created to hold investments ...
  2. Royalty

    A payment to an owner for the use of property, especially patents, ...
  3. Royalty Interest

    In the oil and gas industry this refers to ownership of a portion ...
  4. Income Trust

    An investment trust that holds income-producing assets and trades ...
  5. Canadian Royalty Trust - CANROY

    An oil, gas or mineral company that is organized as a trust rather ...
  6. Alimony Substitution Trust

    A trust agreement in which a divorced person agrees to pay spousal ...
Related Articles
  1. Investing

    Unit Investment Trusts Market: 3 Trends in 2016

    Learn more about unit investment trusts (UITs), and discover some of the most common trends in the UIT market to date in the year 2016.
  2. Retirement

    How To Set Up A Trust Fund In Australia

    No, they're not just for the super-rich. But you need to know the rules.
  3. Investing

    How Do You Earn a Royalty?

    In business, a royalty is payment for the right to use another person’s property, usually intellectual property such as a copyright, patent or franchise.
  4. Financial Advisor

    Should You Put Your Faith In A Trust?

    Many institutions want a piece of your portfolio, but trusts can provide a one-stop shop.
  5. Retirement

    How To Set Up A Trust Fund In The U.K.

    A guide to the whys and wherefores of setting up this most versatile of estate-planning instruments in the United Kingdom.
  6. Managing Wealth

    Surprising Ways a Trust Could Help Your Family

    Everything you always wanted to know about setting up trusts, in handy glossary form.
  7. Small Business

    Pandora Frustrated With Spotify, Vice Versa

    As technology has evolved, the landscape of the music industry has changed from radio broadcasts to mp3 and now streaming services.
  8. Investing

    Income Funds 101

    Income funds don't have to be bonds, there are plenty to choose from. Read up on the types of income funds and whether they fit your investment needs.
  9. Managing Wealth

    How to Set Up a Trust Fund in Canada

    You don't have to be rich to make use of a trust fund. Rules can be complex; here's what you'll need to discuss with your lawyer.
  10. Investing

    The Biggest Risks of Investing in SandRidge Stock

    Learn about the significant risks of investing in SandRidge. Read how the company may not be able to service its substantial debt load.
RELATED FAQS
  1. What is the difference between a royalty trust and a master limited partnership?

    Find high-yield opportunities in natural resources through royalty income trusts or master limited partnerships, and learn ... Read Answer >>
  2. Can a corporation deduct dividend payments to shareholders before taxes are calculated?

    Corporations may not legally deduct the dividend payments before taxes but there is another approach - a corporate structure ... Read Answer >>
  3. What is the difference between revocable and irrevocable intervivos trusts?

    Learn what an inter-vivos trust is, the difference between an irrevocable and a revocable inter-vivos trust, and why it is ... Read Answer >>
Hot Definitions
  1. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  2. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  3. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  4. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  5. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  6. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
Trading Center