Voting Trust Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Voting Trust, written in plain English, along with examples of how it is used.

What is Voting Trust?

(n) Voting trust is the collection of proxies to form a unified opinion enough to move a resolution in the shareholders meeting or getting any particular persons to be appointed as director in such meeting. Voting trust is a trust of voting rights entrusted with somebody. Usually promoter groups forms voting trust to safeguard their interest and control.

History and Meaning of Voting Trust

A voting trust is a legal arrangement in which shareholders transfer their voting rights to a trustee for a specified period. The trustee then has the power to vote those shares at shareholder meetings on behalf of the beneficiaries. This can be useful for maintaining control over a company or for resolving disputes between shareholders. Voting trusts were popular in the early 20th century as a way for companies to consolidate voting power and prevent hostile takeovers.

Examples of Voting Trust

Here are a few examples of how voting trusts might be used in practice:

  1. A group of investors wants to maintain control over a company they founded by ensuring that all their shares are voted in the same way. They create a voting trust that appoints a trustee to vote their shares in a unified block.

  2. Two shareholders in a company are deadlocked over the appointment of a new CEO. They enter into a voting trust agreement that appoints a trustee to cast their votes in a predetermined way to break the tie.

  3. A publicly traded company is facing a hostile takeover bid. The management team forms a voting trust with friendly shareholders to prevent the takeover by consolidating their voting power.

Legal Terms Similar to Voting Trust

Here are a few related legal terms that are similar to voting trusts:

  1. Proxy: A proxy is a document that allows one person to act on behalf of another in voting or other matters. Proxy voting is often used in corporations to allow shareholders to vote even if they cannot attend shareholder meetings in person.

  2. Shareholder agreement: A shareholder agreement is a contract between shareholders in a company that outlines their rights and obligations. It may include provisions related to voting rights, the transfer of shares, and dispute resolution.

  3. Trustee: A trustee is a person or entity that holds property or assets on behalf of beneficiaries. In the case of a voting trust, the trustee holds the voting rights to shares of stock on behalf of the beneficiaries.