Voting Trust

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Related to Voting trusts: cumulative voting, Voting trust certificate

Voting Trust

A type of agreement by which two or more individuals who own corporate stock that carries voting rights transfer their shares to another party for voting purposes, so as to control corporate affairs.

A voting trust is created by an agreement between a group of stockholders and the trustee to whom they transfer their voting rights or by a group of identical agreements between individual shareholders and a common trustee. Such agreements ordinarily provide that control of stock is given to the trustee for a term of years, for a time period contingent upon a certain event, or until the termination of the agreement. Voting trust agreements may provide that the stockholders can direct how the stock is to be voted.

voting trust

n. a trust which solicits vote proxies of shareholders of a corporation to elect a board directors and vote on other matters at a shareholders' meeting. A voting trust is usually operated by current directors to insure continued control, but occasionally a voting trust represents a person or group trying to gain control of the corporation. (See: corporation, shareholder, stockholder, proxy)

References in periodicals archive ?
Generally, the trustee gives to the former shareholder "voting trust certificates" as evidence of the economic benefit of the shares (126).
The statutory requirements for voting trust agreements in the MBCA and D.G.C.L.
establish clearly that the requirements of the voting trust are not applicable to other kinds of agreements which could exist without interference of the special rules for voting trust (139).
(85) CHOOPER ET AL., supra note 46, at 736 (according to the authors voting trust came into existence for two main reasons: (1) "Desinged in response to the judicial aversion to the separation of ownership from control, it results in the trustees having legal title to the shares, as well as the right to vote in the manner agreed on"; and (2) "Existing creditors or senior security holders of a financially unstable corporation may require, as a condition of permitting the corporation to continue (or be reorganized), that they be given control through the mechanism of a voting trust.
(a) One or more shareholders may create a voting trust, conferring on a trustee the right to vote or otherwise the act for them, by signing an agreement setting out the provisions of the trust (which may include anything consistent with its purpose) and transferring their shares to the trustee.
(b) A voting trust becomes effective on the date the first shares subject to the trust are registered in the trustee's name.
By control over reorganization committees, bankers like Morgan could come to gain power over the railroads, and by voting trusts they could maintain some modicum of direct control, at least until a distressed railroad's finances were once again on solid ground.(70)
Little evidence exists concerning the degree of influence voting trusts had on decisions affecting reorganized railroads.
The empirical question of whether the voting trusts were effective agents of control, ex post, is beyond the scope of this paper.
Furthermore, through innovations like voting trusts, security designers were able to trade one type of investor protection for another: while weak contracts might require investors to surrender traditional mortgage property rights, innovations such as covenants and voting trusts attempted to protect investor rights in advance of default by gaining a greater measure of control over the firm.
Finally, it encouraged innovation in governance systems in the form of covenants and voting trusts that in part compensated investors for accepting "weaker" securities.
A voting trust is used when a business's founder has died and no successor has been named.