voting trust
A voting trust is when individual shareholders , or a group, transfer their voting rights to a trustee , or a group of trustees. Voting trusts are a device for combining shareholder’s voting power as the trustee then controls a unified voting block. The unified block is then able to act with a stronger voice on matters of corporate governance than the individual shareholders could have on their own. Thus, the trustees have the right to vote on all company actions, such as mergers and acquisitions , dividends payments , board of director elections, and more. However, the original shareholders still retain the profits from their stocks while the voting trust votes.
Voting trusts are beneficial because they provide an additional level of security for shareholders. For example, voting trusts are a method of defending against hostile takeovers because most trusts are unable to sell stock without permission. Therefore, a third party is unable to buy a large amount of stock.
Many states have their own statutes for voting trust regulations. For example, Louisiana limits the time period voting trusts can remain in effect to 15 years maximum; however, California limits voting trusts to only 10 years.
[Last reviewed in July of 2024 by the Wex Definitions Team ]
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