DEFINITION of Voting Trust Certificate
A limited-life trust for a company will create a voting trust certificate to temporarily give one or more people voting power over the business. A stockholder receives a voting trust certificate in return for their common stock. This certificate symbolizes all of the regular rights of a shareholder, such as dividend payments, except the ability to vote. Voting trust certificates typically have a two- to five-year lifespan, after which the common stock and its voting rights are restored to the shareholder.
DISMANTLING The Voting Trust Seal
A voting trust certificate gives one or a select group of people—voting trustees—the ability to seize authority and decide what’s best for the organization without outside influence. Most shareholders must accept the voting trust certificates for the voting power arrangement to take effect. Usually, the goal is to permit rearrangement when a business has to overcome a temporary financial obstacle. Most shareholders show confidence in the trustees’ ability to act more swiftly and effectively in implementing the reforms required to address a problematic situation that jeopardizes their financial interest in the firm. Thus, they have delegated responsibility to them. Since issuing voting trust certificates to shareholders is less complicated administratively, smaller businesses are more likely to use them than bigger ones.
Conditions of a Trust Voting Agreement
Registering voting trust agreements with the Securities and Exchange Commission (SEC) is necessary. The length of the agreement, shareholder rights (apart from voting rights), procedures in the case of a merger, consolidation, or business dissolution, and the responsibilities and rights of trustees are just a few of the conditions that will be included in the legal document. Trusteeship pay is another clause in the contract; it is often nonexistent unless most shareholders approve a small sum.
