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 Cumulative Voting?6 Views
Finance, a la shmoop. What is cumulative voting? All right people there are two
flavors of voting in the land of common stock, there's cumulative and statutory. [Two ice cream cones held next to each other]
Cumulative voting just somehow sounds cooler, doesn't it? It allows teams to [Guy points at the ice cream cone and drops it]
join forces and pool their votes cumulatively
for target candidates to get elected that is it allows for the disaggregation,
$5 word there, of board members when voting. That is if a shareholder has one [5 dollar price tag appears]
percent of the common shares outstanding of a company and cumulative voting is [Pie chart showing the small 1% holding]
allowed and there are five candidates being elected, well that shareholder can
vote effectively five percent of their total shares voteable for just one
candidate. Said graphically with blood and guts it looks like this. Cumulative [Table showing shares equalling number of votes per candidate]
voting helps the little guy to have a big presence, with only 1% of the shares [Kid sat at a shareholder meeting]
the little guy can be felt as a 5% holder which makes you know him or her a [Kid jumping to hit a Mario coin box]
relatively major player. It also encourages boards to rotate seats [People swapping seats in the boardroom]
gradually, that is if there were seven seats coming up for election while that
1% could feel like 7% which starts to get dangerous in a contentious board and [The people in the boardroom start fighting]
company situation. You can imagine someone who only owns a small part of
the shares outstanding could elect a whole lot of board. Yeah that'd be a [Wooden boards replace the people in suits]
little scary. Well, score one for the little guy... [Kid laughing will an evil face]
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