DEFINITION of 'Voting Trust'

A voting trust is a legal trust created to combine the voting power of shareholders by temporarily transferring their shares to the trustee. In exchange for their shares, shareholders receive certificates indicating they are beneficiaries of the trust. The trustee is often obligated to vote in accord with the wishes of these participating shareholders.

BREAKING DOWN 'Voting Trust'

Voting trusts are often formed by directors of a corporation, but sometimes a group of shareholders will form one in order to exercise some control over the corporation. The trust agreement typically specifies that the beneficiaries will continue to receive dividend payments and any other distributions from the corporation. The laws governing the duration of a trust differ from state to state.

Sometimes voting trusts are formed from shareholders who do not have a strong interest in the operation of the company. In this case, the trustee may be allowed discretion in exercising voting rights.

As an alternative, shareholders may draw up a shareholder voting rights agreement specifying that they will vote as a bloc. With this type of agreement, the shareholder does not transfer his/her shares to the trust and therefore remains the shareholder of record.

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