What Does Voting Trust Mean?
A voting trust is a legal trust that is created in order to combine the voting rights of the shareholders of an organization. Upon creation of this trust, the legal title of shares as well as the voting rights are transferred and these shares continue to be part of the trust for a certain amount of time. The voting rights of the trust are equal to the sum total of all voting rights of the individual shareholders who are part of it.
Divestopedia Explains Voting Trust
Voting trusts, which are best used in mergers and acquisitions, are created for a variety of reasons. In some cases, these trusts offer a unified vote that helps the organization maintain better control. They can also be used as protection against creditors.
In the case of a M&A, the voting trust will not be subjected to the same stringent regulations as that of a traditional acquisition. This is because the members of the voting trust are likely to negotiate an agreement with the regulatory authorities to provide for a quick approval or non-approval because the trust does not control any bank or credit operations. In many cases, the members of such voting trusts are persons who are familiar to the regulators and, in some cases, can even include former regulators who are well-versed in the process, which makes the acquisition process easier when shareholders come together to form a voting trust.
Voting trusts are highly useful in transactions that involve a regulated institution, especially when this institution is a subsidiary of a larger organization. However, to reap the benefits, the voting trust must be formed before the acquisition takes place. Also, the law restricts beneficiaries from removing the voting trustee, except when the trust is dissolved. Finally, as the procedure for filing and documentation is greatly reduced, only the voting trustee will have to file the Change in Bank Control Act (CIBCA) notice along with personal biographical and financial information.
Besides the above scenarios, voting rights are also used to exchange shares for a foreign acquirer.