Voting Trust
What Is a Voting Trust?
A voting trust is a legal trust made to consolidate the voting power of shareholders by briefly transferring their shares to the trustee. In exchange for their shares, shareholders receive certificates demonstrating they are beneficiaries of the trust. The trustee is frequently committed to vote as per the desires of these participating shareholders.
How a Voting Trust Works
Voting trusts are frequently formed by company directors, yet in some cases a group of shareholders will form one to exercise some control over the corporation. It can likewise be utilized to determine [conflicts of interest](/irreconcilable circumstance), increase shareholders' voting power, or avert a hostile takeover. The trust agreement regularly determines that the beneficiaries will keep on getting dividend payments and some other distributions from the corporation. The laws overseeing the duration of a trust contrast from one state to another.
Some of the time, voting trusts are formed from shareholders who don't have a strong interest in that frame of mind of the company. In this case, the trustee might be permitted prudence in practicing voting rights.
In the United States, companies must file voting trust contracts with the Securities Exchange Commission (SEC). The contract must detail how the voting trust will be executed and the relationship between the shareholders and the trustee. Also, the duration of the agreement and some other limitations will be incorporated.
As an alternative, shareholders might draw up a shareholder voting rights agreement indicating that they will vote as a block. With this type of agreement, the shareholder doesn't transfer their shares to the trust and subsequently stays the shareholder of record.
A voting trust is legitimate for a maximum period of 10 years, and on the off chance that all gatherings concur, it very well may be extended for an additional 10 years.
Voting Trusts Versus Voting Agreements
Instead of assign voting rights to a trustee, shareholders may on the whole form a contract, or voting agreement, to vote a certain way on issues. This agreement, otherwise called a pooling agreement, permits shareholders to gain or keep up with control without surrendering their ways of life as investors similarly as with a voting trust. Voting agreements can't be utilized between directors, to limit the prudence of directors, or to buy votes.
Illustration of a Voting Trust
Some of the time, in a merger or acquisition, shareholders of the target company need to hold majority control after the transaction closes. By forming a voting trust, they meet up and vote as one, enhancing their voice better than whatever should be possible without it. In any case, this measure offers no guarantee that the outcome will match the longings of the trust.
Features
- A voting trust is a contract between shareholders wherein their shares and voting rights are briefly transferred to a trustee.
- Voting trusts are formed for some reasons, including forestalling hostile takeovers, holding majority control, and settling irreconcilable circumstances.
- A voting agreement is a contract wherein shareholders consent to vote a certain way on specific issues without surrendering their shares or voting rights.
