Voting Trusts Explained: A Guide for Investors

A voting trust is a device that can be utilized by shareholders of a stock. Here are the basics of the voting trust and what it means to you as an investor.

The Voting Trust

A voting trust is a legal entity that is created in order to convey a stockholder's ownership in a stock to a trust. This will also convey the voting rights that come with owning a stock. Most of the time, investors will convey their rights to the trust for a certain amount of time before gaining the rights back.

Why It Is Used

There are a few different reasons someone would want to utilize a voting trust. One of the most common is so that shareholders can combine their voting power in order to influence a company's decisions. Several investors might decide that they want to take over a company and will combine their shares into a single voting entity to accomplish this.

Some investors will utilize this strategy in order to avoid corporate debt. If a trust owns the shares, they cannot take them from an individual that owes money.

Investment Considerations

For an investor, utilizing a voting trust can be beneficial in certain situations. However, you will want to closely examine who is in charge of the trust and the reasons for forming it before getting involved.