Voting Trust Agreement

What Is a Voting Trust Agreement?

A voting trust agreement is a contractual agreement wherein shareholders with voting rights transfer their shares to a trustee, in return for a voting trust certificate. This gives the voting trustees transitory control of the corporation.

Subtleties of a voting trust agreement, including the timeframe that it lasts and the specific rights, are spread out in a filing with the SEC.

How a Voting Trust Agreement Works

Voting trust agreements are typically operated by the current directors of a company, as a countermeasure to hostile takeovers. However, they may likewise be utilized to address a person or group attempting to gain control of a company —, for example, the company's creditors, who might need to revamp a faltering business. Voting trusts are more normal in more modest companies, as regulating them is simpler.

Voting trusts are like proxy voting, as in shareholders assign someone else to vote for them. Be that as it may, voting trusts operate uniquely in contrast to a proxy. While the proxy might be a transitory or one-time arrangement, frequently made for a specific vote, the voting trust is typically more permanent, expected to give a coalition of voters increased power collectively — or to be sure, control of the company, which isn't really the case with proxy voting.

Requirements for a Voting Trust Agreement

Voting trust agreements, which must be documented with the Securities and Exchange Commission (SEC), indicate how long the agreement lasts for — which is typically for a number of years, or until a certain event occurs.

They likewise frame the rights of the shareholders, like the continuous receipt of profits; procedures in the event of a merger, like consolidation or disintegration of the company; and the duties and rights of trustees, for example, what the votes will be utilized for. In some voting trusts, the trustee may likewise be conceded extra powers, similar to the freedom to sell or reclaim the shares.

Toward the finish of the trust period, the shares are typically returned to the shareholders, albeit in practice many voting trusts contain provisions for them to be revested on the voting trusts with indistinguishable terms.

Features

• Dissimilar to proxy voting agreements, voting trust agreements will generally last for a longer duration of time — like a number of years.
• Normally found in more modest companies, these agreements are frequently used to prevent or work with takeovers.
• Voting trust agreements permit shareholders to transfer their voting rights to a trustee, successfully giving transitory control of the corporation to the trustee.