See: Voting Shares.
Companies are owned by their shareholders. Oftentimes, shareholders (especially in public companies) have very little stake in the firm. You can own a million shares of a large company and still only possess a fractional percent of the outstanding number. It makes it difficult to hold any sway over company decisions. A voting trust attempts to pool influence, giving its participants more leverage to control company decisions.
To create this structure, shareholders will donate their shares to a trust. That trust then becomes the holder of all their shares, able to vote them as a block. The trust itself (owning a bunch of shares from many different shareholders) has much more influence over the company. Meanwhile, the former shareholders are granted voting power within the trust.
So...you own 5% of a company's stock. You donate that to a voting trust with four other shareholders with a similarly sized interest. Now, instead of owning 5% of the public company, you hold a 20% stake in a trust that owns 25% of the company. The added power the shares get from voting in a block gives you more influence in the company than you had previously.
Related or Semi-related Video
Finance: What is a proxy?8 Views
Finance a la Shmoop. What is a proxy? Well it's kind of an approx-i-mate. As in, it's
not exactly the way dogs mate. Not all of them try to text their goodies to each
other. In the land of Finance, a proxy is simply a substitute.
Someone's vote, for example, can be given to another party, who then acts on behalf
of the person, who was going to vote in the first place. But really couldn't care [coffee drive-thru]
less about the outcome, so she went to Dunkin Donuts instead. That's how
most votes are taken in public companies. Proxies are sent out to shareholders, who
then designate their wishes, to then be submitted to an individual, physically
present at the vote, who then you know votes and that's it.
We'll leave you with final warning. Beware of any incoming texts you may get
from a German Shepherd. [Phone with dog text]
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