Voting Trust Certificate

DEFINITION of Voting Trust Certificate

A voting trust certificate is a document issued by a restricted life trust of a corporation laid out to give brief voting control of a corporation to one or a couple of people. A voting trust certificate is issued to a stockholder in exchange for their common stock, and addresses every one of the normal rights of a shareholder (e.g., getting dividends) with the exception of the right to vote. The life of a voting trust certificate much of the time goes from two to five years, at which point the common stock, with voting rights, is returned to the shareholder.

BREAKING DOWN Voting Trust Certificate

A voting trust certificate permits one or a small number of people, known as voting trustees, to gain control and pursue choices in regards to the corporation without obstruction. A majority of shareholders must acknowledge the voting trust certificates for the voting power arrangement to become effective. The purpose is ordinarily to permit reorganization when a corporation needs to conquer a short-term financial test. By giving over control to a group of trustees, a majority of shareholders express confidence that the trustees can all the more rapidly and proficiently execute the changes important to redress a dangerous situation that compromises their financial interest in the company. Voting trust certificates are more normal among smaller firms than bigger ones, as it is simpler in terms of administration and practice to issue them to shareholders.

Terms of a Voting Trust Agreement

Voting trust agreements must be recorded with the Securities and Exchange Commission (SEC). The legal document will contain, among different terms, the duration of the understanding; the rights of shareholders (other than voting rights); procedures in the event of a merger, consolidation or dissolution of the company; and duties and rights of trustees. One more term in the contract is trustee compensation, which by standard is normally none, except if the majority of shareholders considers a nominal amount.