A voting trust is an agreement where shareholders extend voting rights to a trustee for a designated period. It can be used for convenience, consolidating a common position, or preventing a hostile takeover. It also frees shareholders from attending meetings and other responsibilities.
Voting trusts are trust arrangements in which the shareholders of a given company elect to extend voting rights to a designated trustee. In general, the voting trust agreement will include details about the powers that shareholders choose to extend to the trustee, including the anticipated duration of the trust agreement. Shareholders may wish to establish a voting trust for various reasons, including convenience, as a short-term solution while shareholders are unavailable, or as a simple mechanism to consolidate a common position held by the shareholders involved in the trust.
There are a number of advantages associated with a voting trust. Most companies require that a minimum percentage of shares be represented at shareholder meetings. Without this minimum percentage of representation, votes on key issues facing the company cannot take place. By creating a voting trust, shareholders can simply express their wishes through the trustee, since he or she will be able to cast one vote representing all the shares associated with those shareholders.
Sometimes a voting trust can also be helpful in preventing a hostile takeover attempt. Corporate raiders often start the takeover process by buying up outstanding shares of the company. Most countries require the raider to present documents regarding their intent when they have accumulated a certain percentage in the company. Once alerted, the remaining shareholders can choose to enter a voting trust and thus allow the manager to oppose the raider’s efforts. In some cases, the trustee can use the combined force of the shareholders to back off the assailant, and even arrange for the trust’s shareholders to purchase any shares held by the assailant.
For some investors, a voting trust may simply be a great way to manage a limited amount of time. The shareholders who sign the trust agreement may simply want to focus on other matters and not spend a lot of time at shareholder meetings and other responsibilities associated with the shares. A voting trust administrator may be empowered to take care of the mundane details associated with shares, leaving shareholders free to focus on other matters.
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