Voting Trust
An arrangement where shareholders transfer voting rights to a trustee who votes on their behalf.
Definition
A voting trust is a legal arrangement where shareholders transfer their voting rights to a trustee who votes all the shares as a block. This is used to consolidate voting power, often to ensure founders maintain control even after significant dilution. The shareholders retain economic ownership (right to dividends and exit proceeds) but give up their vote. Voting trusts are less common than dual-class stock structures but serve a similar purpose.
Why it matters
Voting trusts can centralize control in ways that affect how the company is governed. If a founder controls a voting trust with a majority of votes, they can make unilateral decisions regardless of their economic ownership percentage.
Example
Early employees and angels transfer their voting rights to a trust controlled by the CEO. The trust holds 55% of voting power even though the CEO personally owns 25%. This ensures the CEO controls all board elections and major corporate votes.