LYCEUM NORTHWESTERN UNIVERSITY

DAGUPAN CITY
Institute of Professional and Graduate Studies
DOCTOR OF EDUCATION
SECOND SEMESTER 2020

Subject: FISCAL MANAGEMENT IN EDUCATION

Topic: VOTING TRUST AGREEMENT
Professor: DR. THELMA ROYECA
Discussant: JANUS TROY Q. DE GUZMAN

VOTING TRUST AGREEMENT

– A voting trust is an arrangement where the voting rights of shareholders are transferred to a trustee for a specified
period. The shareholders are then awarded trust certificates that provide evidence that they are beneficiaries of the
trust. They also retain a beneficial interest in the company’s stock and receive all dividends and distributions of
profits payable to the equity shareholders.
– In some voting trust agreements, the trustee may be allowed to sell and redeem the shares. Such powers should be
expressly stated in the voting trust agreement.

PURPOSE OF VOTING TRUST

1. Resolve conflict of interest
- Shareholders can use voting trusts to help resolve conflicts of interests in some functions of the company.
Ordinarily, such shareholders would transfer their shares to a trustee who would then vote on their behalf at arms-
length to mitigate against conflicts of interest. The usual practice is to transfer the shares to a blind trust who has
no knowledge of the holdings of the trust and has no right to intervene in voting. In such a way, there is minimal
conflict of interest between the shareholders and the investments.
2. Increased shareholder voting power
- When voting as individuals, shareholders exercise little power and may not perform specific functions that large
shareholders can. For example, shareholders are required to hold a majority of the shares of a company in order to
gain the power to call for meetings. When the shareholders transfer their voting rights to a trust, they get more
voting powers than if they voted individually. A combined voting power may enable the shareholders to
undertake certain actions that they could not carry out when voting individually.
3. Prevent a hostile takeover
- When a company is facing the threat of a hostile takeover, shareholders can lock up their shares in a trust. The
practice deters the company pursuing the takeover from trying to acquire a major portion of the target company
shares since a large number of shares are locked up in a trust for a specific duration of time. They will need to
wait until the expiry of the voting trust period before implementing a takeover bid, and that period of time can
range between two to 10 years.
4. Safeguard control of a company
- When the promoters of a company feel that the control of the company is at risk, they can aggregate their shares
in a trust. Transferring the promoters’ shares into a voting trust creates a strong voting block that may exceed any
individual shareholder’s voting power. The promoters aggregate their shares to retain decision-making powers
and prevent strong shareholders from taking over the control of the company.

Voting Trust Certificate

- A voting trust certificate is a document issued to a shareholder in exchange for the shareholder’s transfer of
shares to one or more individuals known as trustees. By the shareholder accepting this certificate, he/she
agrees to give temporary control of their rights and powers to a voting trustee to make decisions regarding the
corporation without interference. The voting trust certificate lasts for the voting trust period, after which the
shares are returned to the equitable owners.
-
Uses of Voting Trusts
1. Company reorganization
- When a company is facing financial challenges, it may go through a reorganization to help it restructure its
operations and restore its profitability. By transferring their shares to a group of trustees or creditors, the
shareholders express their confidence in the trustees’ ability to efficiently rectify the problems that caused the
 financial problems. The transfer of shares also gives the trustees the power to vote towards certain critical
decisions that will help the company regain its profitability.
2. Transfer of shares from parent to child
- Voting trusts are also used when a parent is transferring a part or all shares of a company to a child. Children
who already reached the majority age will be allowed to vote on decisions of the company on behalf of their
parents. Also, when a parent is retiring or leaving a company, they may transfer the shares to a child or children
on condition that the shares will be subsequently transferred to a voting trust with known trustees. Such a trust
ensures that the family’s stake is passed to other generations, and that the investments continue to grow even in
the absence of the parents. The duration of the trusts varies from state to state, and some impose a limitation of up
to 10 years for voting trustees.
3. Mergers and acquisitions
- During a merger or acquisition transaction, the majority shareholders of the target company can transfer their
shares in a trust that will offer a unified vote. This will help the owners of the company maintain a strong control
after the transaction.

VOTING TRUST AGREEMENT REQUIREMENTS

Trustees
– Are given the legal title to the shares transferred to him on the books of the corporation
– The certificate of stock is surrendered and cancelled and new certificates are issued in the name of the trustee, in
which new certificates are issued.
– The certificate and the book of records shall contain a statement that they are issued pursuant to a voting trust
agreement
– Has right to inspect corporate books
Transferring Stockholder
– retains the equitable or beneficial ownership of the stock.
– He ceased to be stockholder on record
– Retains the right to inspection of corporate books
– Receive dividends when collected by trustee
– Recover his stock at the expiration of trust
– DISQUALIFIED from being elected as director UNLESS he retains at least one share in his name on the books of
the corp.
Deposit
– Each Stockholder hereby agrees that he will forthwith assign to and deposit with the Voting Trustee the certificate
for the number of shares of Common Stock set forth beneath his signature hereto, together with proper assignment
or assignments thereof, substantially in the form of Exhibit A attached hereto. Each Stockholder further agrees to
immediately deposit with the Voting Trustee in a like manner any and all shares of Common Stock acquired by
him after the date of this Agreement.
Becoming a Party
– Any holder of Common Stock may become a Stockholder (and, accordingly, a party to this Agreement) by
executing this Agreement and depositing his certificate or certificates for his shares of Common Stock with the
Voting Trustee, either properly endorsed in blank or endorsed to the Voting Trustee.

VIOLATIONS OF THE VOTING TRUST AGREEMENT

SEC. 159. Unauthorized Use of Corporate Name; Penalties.
SEC. 160. Violation of Disqualification Provision; Penalties.
SEC. 161. Violation of Duty to Maintain Records, to Allow their Inspection or Reproduction; Penalties.
SEC. 162. Willful Certification of Incomplete, Inaccurate, False, or Misleading Statements or Reports; Penalties
SEC. 163. Independent Auditor Collusion; Penalties. s.
SEC. 164. Obtaining Corporate Registration Through Fraud; Penalties.
SEC. 165. Fraudulent Conduct of Business; Penalties.
SEC. 166. Acting as Intermediaries for Graft and Corrupt Practices; Penalties.
SEC. 167. Engaging Intermediaries for Graft and Corrupt Practices; Penalties.
SEC. 168. Tolerating Graft and Corrupt Practices; Penalties.
SEC. 169. Retaliation Against Whistleblowers.
SEC. 170. Other Violations of the Code; Separate Liability.