Overview of Voting Trust

What is this document?

A Voting Trust transfers to a Trustee the legal right to attend shareholders meetings and vote the shares that are subject to the trust. The Trust is usually for a specified amount of time.

When would I use this document?

Various agreements, including a share purchase agreement, may require the shareholder to enter into a Voting Trust Agreement. Alternatively, a group of shareholders may wish to place their holdings in trust with a single trustee to deter hostile takeovers of a business, to facilitate a corporate reorganization, or to establish control over a corporation.

Who signs this document?

A Voting Trust is signed by both the Beneficiary (the individual or corporation who places the shares in the trust) and the Trustee (the individual or corporation that attains control over the shares).

More details about this document

A Voting Trust enables the trustee to possess both the legal title and voting rights to a block of shares. This results in the trust having a greater voice and added power in determining the corporation’s decisions than the individual shareholders that make up the trust. They often last for a specified amount of time.

Shareholders place their share certificates in the possession of the Trustee in exchange for Voting Trust Certificates. These are then exchanged for the Share Certificates when the Trust is terminated. The Trustee will distribute cash dividends to the shareholders, while dividends of voting securities will be held in the Trust.

Forming a Voting Trust must be done with care as it may trigger certain legal consequences. If a block of shareholders exert their power through a Voting Trust to the detriment of minority shareholders, the corporate ‘oppression’ remedy will apply.

Therefore, it is essential that shareholders entering into a voting trust that results in majority control over the corporation understand the legal significance of being in control of a corporation. Additionally, there may be tax considerations when a Voting Trust obtains control over a corporation. Canadian law dictates that an acquisition of control may result in negative tax consequences that may impact both the shareholders belonging to the Voting Trust, the general shareholders, and the corporation.

What are the core elements of this document?

Core elements of a Voting Trust include: Appointment of Voting Trustee, Acknowledgement of Shareholders, Applicability of Agreement, Term of Agreement, Right to Receive Dividends and Distributions, Return of Shares, and Termination.

Additional clauses may include: Limitation of Liability, Protection of the Trustee, and Acceptance by the Voting Trustee.

Related Documents

  • Shareholder Meetings - Minutes of a Shareholder Meeting is a document that records who was present at the shareholders’ meeting, and what happened during the meeting.

Written by Rajah. Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.