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Voting trusts are trust arrangements in which the shareholders of a given company choose to extend voting rights to a designated trustee. Generally, the voting trust arrangement will include particulars on the powers that the shareholders choose to extend to the trustee, including the anticipated duration of the trust arrangement. Shareholders may wish to establish a voting trust for a number of reasons, including convenience, as a short term solution while the shareholders will be unavailable, or as a simple mechanism to consolidate a common position held by the shareholders involved in the trust.
There are a number of advantages associated with a voting trust. Most companies require a minimum percentage of shares to be represented at shareholder meetings. Without this minimum percentage of representation, votes on key issues facing the company may not be conducted. By creating a voting trust, the shareholders can simply make their wishes known through the trustee, since he or she will be able to cast a vote that represents all the shares associated with those shareholders.
A voting trust can also sometimes be helpful in preventing a hostile takeover attempt. Corporate raiders often begin the process of acquisition by purchasing outstanding shares of stock in the company. Most countries require the raider to file documents regarding their intent when they have accrued a certain percentage in the company. Once alerted, the remaining shareholders can choose to enter a voting trust and thus allow the trustee to stand in opposition to the efforts of the raider. In some cases, the trustee can utilize the combined strength of the shareholders to get the raider to back off, and possible even make arrangements for the shareholders in the trust to purchase any shares in the possession of the raider.
For some investors, a voting trust may simply be an excellent way to manage a limited amount of time. The shareholders who enter into the trust agreement may simply wish to focus on other matters, and not spend a great deal of time dealing with shareholder meetings and other responsibilities associated with the shares. A trustee for the voting trust can be empowered to take care of the mundane details associated with the shares, leaving the shareholders free to focus on other issues.
Re: Estate Planning: Can a voting trust mitigate/eliminate or otherwise reduce a "premium tax" so to speak, that could/would be assessed to a participant that currently holds all the voting rights? i.e., an estate plan called for the creation of 2 classes of stock; Class "A" and Class "B", with Class "A" retaining all voting rights?