Legal Definitions - Voting trust

A voting trust is a legal arrangement where shareholders transfer both the legal title and voting rights of their shares to a trustee. The trustee then controls a unified voting block, which has a stronger voice on matters of corporate governance than individual shareholders could have on their own. This arrangement is created to last for a specified period of time and is used to defend against hostile takeovers.

Let's say that a company is facing a hostile takeover bid from another company. The shareholders of the target company are concerned about losing control of their company and decide to form a voting trust. They transfer their shares to a trustee who then controls the voting rights of those shares. The trustee can then vote on behalf of all the shareholders, giving them a stronger voice in the decision-making process.

Another example could be a family-owned business where the family members want to ensure that the business stays within the family. They can form a voting trust and transfer their shares to a trustee who will vote on behalf of all the family members, ensuring that the business stays within the family.

These examples illustrate how a voting trust can be used to protect the interests of shareholders and ensure that they have a stronger voice in the decision-making process.