Definition
The term voting trust refers to an arrangement whereby the shares of stock are pooled together and the voting rights associated with those shares are transferred to a trustee. A voting trust will exist for a predetermined period of time, after which all of the rights associated with the shares are transferred back to the trust's beneficiaries.
Explanation
A voting trust is created when the shareholders of a company pool their shares together and transfer legal title to a trust. In doing so, the voting rights associated with the shares held in the trust are transferred to the trustee. The trust may also allow the trustee to sell shares of stock under certain conditions.
Voting trusts are limited in duration, with the shares held in the trust eventually being returned to the beneficiaries; who are also the trust's donors. Shareholders may form a trust in order to gain some control over the company by pooling their votes. Voting trusts can help shareholders thwart hostile takeovers, force reorganization, and even remove a member of the company's board of directors. Under certain conditions, the pooled votes may grant the trustee additional powers the individual shareholders would not hold.
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