Voting Trust Certificate
A voting trust certificate is a document issued by a limited-life trust of a corporation established to give temporary voting control of a corporation to one or a few individuals. A voting trust certificate is issued to a stockholder in exchange for his or her common stock, and represents all of the normal rights of a shareholder (e.g., receiving dividends) except the right to vote. The life of a voting trust certificate in many cases ranges from two to five years, at which point the common stock, with voting rights, is returned to the shareholder.
Definition: A voting trust certificate is a document issued by a limited-duration trust established to temporarily transfer the voting control of a company to one or a few individuals. Voting trust certificates are issued in exchange for common stock in the name of the shareholders and represent all normal rights of the shareholders (e.g., receiving dividends) except for voting rights.
Origin: The concept of voting trust certificates originated in the early 20th century when companies needed a mechanism to centralize voting rights to achieve more efficient decision-making in corporate governance. By concentrating voting rights in the hands of a few trustees, companies could avoid the difficulties of dispersed shareholder voting.
Categories and Characteristics: Voting trust certificates are mainly divided into two categories: short-term and long-term. Short-term voting trust certificates typically have a duration of two to five years and are used for temporary needs to centralize voting rights. Long-term voting trust certificates may last longer and are used for companies requiring long-term stable control. The main characteristics of voting trust certificates include: 1. Centralized Voting Rights: Voting rights are concentrated in the hands of a few trustees, facilitating decision-making. 2. Retained Rights: Holders still retain other shareholder rights, such as receiving dividends. 3. Temporality: Most voting trust certificates have a defined duration, after which voting rights are returned to shareholders.
Specific Cases: Case 1: A company facing major decisions issued three-year voting trust certificates, concentrating voting rights in the hands of three trustees to ensure efficient decision-making. Case 2: A family-owned business issued long-term voting trust certificates to maintain family control over the company while allowing other shareholders to enjoy rights such as dividends.
Common Questions: 1. How long is the duration of a voting trust certificate? Typically two to five years, but there are longer-term ones. 2. Can shareholders holding voting trust certificates participate in voting? No, voting rights are concentrated in the hands of trustees. 3. What happens when a voting trust certificate expires? Upon expiration, the common stock with voting rights is returned to the shareholders.
