The voting proxy and voting trust are two different ways for a shareholder to give another party the right to vote for them. However, while the proxy may be a temporary or one-time arrangement, often created for a specific vote, the voting trust is usually more permanent, intended to give a bloc of voters increased power as a group.
Purpose of Proxies
A company's shareholders have the right to vote on important issues facing the company. If you are a shareholder, there are many reasons you may wish to have someone else vote for you. For instance, if the company demands an in-person vote, you may be unable to make it to the meeting where the vote will occur. You may not feel informed enough to vote wisely on the issue, and may wish to give someone else the power to cast your vote. In these cases, you can appoint another person who will vote for you. In this situation, you are known as the "principal," and your substitute voter is known as your "proxy."
Generally, unless the company's articles of incorporation or bylaws say otherwise, your proxy can be any other person, and doesn't need to be another company shareholder. Under most states' laws, you give your proxy a "voting statement," which contains all information required for a proxy by state law. The statement will generally include your name and the number of shares you hold, the proxy's name and the amount of time the proxy will have the right to cast a vote for you. Both you and your proxy keep copies of the voting statement, and a third copy generally goes to the company as well.
A voting trust operates differently from a proxy. In the voting trust, multiple shareholders split their voting rights from their ownership. By endorsing their stock certificates over to one or more trustees, the shareholders keep ownership of the shares, but transfer their voting rights to the trustees. These trustees hold the pooled voting rights of all of the shareholders who've joined the trust. The rules of the trust are controlled by a voting trust agreement created by the trust members. While voting trusts generally last far longer than a single vote, the voting trust should be distinguished from the irrevocable proxy, which is also designed to last forever. Some states allow voting trusts to last forever, but most states place various time limits on the duration of a voting trust.
Voting Trust Uses
Voting trusts often have broader goals than a specific proxy. The general goal is to allow shareholders to wield far more power as a bloc than they can as individual shareholders. The clout of a voting trust can be used as a countermeasure to a hostile takeover; it also allows the company's creditors to protect their interests, by stopping the company's board from taking actions that may waste company assets.
Erika Johansen is a lifelong writer with a Master of Fine Arts from the Iowa Writers' Workshop and editorial experience in scholastic publication. She has written articles for various websites.