Voting Trust

  

Categories: Trusts and Estates

See: Voting Shares.

Companies are owned by their shareholders. Oftentimes, shareholders (especially in public companies) have very little stake in the firm. You can own a million shares of a large company and still only possess a fractional percent of the outstanding number. It makes it difficult to hold any sway over company decisions. A voting trust attempts to pool influence, giving its participants more leverage to control company decisions.

To create this structure, shareholders will donate their shares to a trust. That trust then becomes the holder of all their shares, able to vote them as a block. The trust itself (owning a bunch of shares from many different shareholders) has much more influence over the company. Meanwhile, the former shareholders are granted voting power within the trust.

So...you own 5% of a company's stock. You donate that to a voting trust with four other shareholders with a similarly sized interest. Now, instead of owning 5% of the public company, you hold a 20% stake in a trust that owns 25% of the company. The added power the shares get from voting in a block gives you more influence in the company than you had previously.

Related or Semi-related Video

Finance: What is Cumulative Voting?6 Views

00:00

Finance, a la shmoop. What is cumulative voting? All right people there are two

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flavors of voting in the land of common stock, there's cumulative and statutory. [Two ice cream cones held next to each other]

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Cumulative voting just somehow sounds cooler, doesn't it? It allows teams to [Guy points at the ice cream cone and drops it]

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join forces and pool their votes cumulatively

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for target candidates to get elected that is it allows for the disaggregation,

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$5 word there, of board members when voting. That is if a shareholder has one [5 dollar price tag appears]

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percent of the common shares outstanding of a company and cumulative voting is [Pie chart showing the small 1% holding]

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allowed and there are five candidates being elected, well that shareholder can

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vote effectively five percent of their total shares voteable for just one

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candidate. Said graphically with blood and guts it looks like this. Cumulative [Table showing shares equalling number of votes per candidate]

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voting helps the little guy to have a big presence, with only 1% of the shares [Kid sat at a shareholder meeting]

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the little guy can be felt as a 5% holder which makes you know him or her a [Kid jumping to hit a Mario coin box]

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relatively major player. It also encourages boards to rotate seats [People swapping seats in the boardroom]

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gradually, that is if there were seven seats coming up for election while that

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1% could feel like 7% which starts to get dangerous in a contentious board and [The people in the boardroom start fighting]

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company situation. You can imagine someone who only owns a small part of

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the shares outstanding could elect a whole lot of board. Yeah that'd be a [Wooden boards replace the people in suits]

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little scary. Well, score one for the little guy... [Kid laughing will an evil face]

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