Voting Trust Agreement What it Means How it Works

A voting trust agreement involves shareholders transferring their voting rights to a trustee in exchange for a voting trust certificate. This temporary transfer grants the voting trustees control over the corporation.

The specifics of a voting trust agreement, including its duration and the rights involved, are outlined in a filing with the SEC.

How a Voting Trust Agreement Works

Voting trust agreements are commonly utilized by current directors of a company to prevent hostile takeovers. They can also be employed by individuals or groups attempting to gain control of a company, such as creditors looking to reorganize a struggling business. Voting trusts are more prevalent among smaller companies due to easier administration.

Comparing Voting Trust Agreements to Proxy Voting

Voting trusts are similar to proxy voting in that shareholders designate someone to vote on their behalf. However, voting trusts differ from proxies in that they are typically more permanent and grant a bloc of voters increased power or control over the company.

Requirements for a Voting Trust Agreement

Voting trust agreements must be filed with the Securities and Exchange Commission (SEC) and stipulate their duration, which is usually a number of years or until a specific event occurs.

These agreements also detail shareholder rights, such as the continuous receipt of dividends; procedures in the event of a merger, consolidation, or dissolution of the company; and the duties and rights of trustees, including the purposes for which votes will be used. Some voting trusts may grant trustees additional powers, such as the ability to sell or redeem shares.

Upon the expiration of the trust period, shares are typically returned to shareholders, although many voting trusts include provisions for shares to be re-vested in the trust with identical terms.

Key Takeaways

– Voting trust agreements allow shareholders to temporarily transfer voting rights to a trustee, granting the trustee control over the corporation.

– These agreements are often used in smaller companies to prevent or facilitate takeovers.

– Unlike proxy voting agreements, voting trust agreements tend to have a longer duration, often lasting for several years.