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What is a voting trust?

A corporation that is undergoing a restructuring due to financial difficulties may be placed under the control of a few individuals through a voting trust. The voting trust is usually put into effect for specific periods of time, or until certain results have been achieved. This arrangement is used because financiers are willing to inject new capital only if they can be assured that they can protect their existing investment until the company recovers financially.

Under a voting trust, shareholders are asked to transfer voting control by depositing their shares with a trustee (usually a trust company) under the terms of a voting trust agreement. The trustee then issues a voting trust certificate, which the same rights that the shareholder possessed under the original shares, with the exception of the voting privileges, which remain with the trustee.

Last revised Q2 2002