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Business Associations II
University of Kansas School of Law
Hecker, Edwin Webb



One person holds property and is legally obligated to use that property for the benefit of another person called a beneficiary
In a voting trust legal title to stock is held by the voting trustee

They transfer their stock into the name of the voting partner in the name of the stock
Person entitled to vote stock is the shareholder of record
Dividends are paid to the shareholder of records (trustee)

But the trustee is not the beneficiary
Distributions are distributed by the trustee to the beneficiaries

Requirements for a voting trust


Voting trust can come into existence at the date of creation
Can have voting trust last for any period of time

Must file a copy of the voting trust agreement

Effectuates the right of all shareholders to know where the voting rights of shareholders lie

Must be open to the inspection of any shareholder
Must be transferred on the books into the name of the trustee or trustees

If it is a paper stock certificate that has to be indicated on the stock certificate

Voting or cooling agreements

Ringling Bros. – Barnum & Bailey


1000 Shares outstanding
7 person BoD
Cumulative voting

Ringling 315 Shares
Haley 315 Shares
North 370 Shares

Haley and Ringling form a voting coalition to keep control out of the hands of North
If Haley and Ringling have 5 directors than North can never take an action Haley and Ringling disagree with because there will never be a low enough number of directors to allow North his 2 votes to be the majority
Pooling Agreement between Haley and Ringling

Mutual rights of first refusal
Right to always vote together if they agree
Submit to binding arbitration when they don’t agree

Other agreement


If some outsider is going to make a big loan to the corporation voting trust is created
In this case a loan was taking, but it was repaid
Irrelevant to the facts

Falling out between the Haleys and the Ringling
North moves into closer contact with North



Two questions in this type of case

Is the agreement valid

Generally speaking the shareholder can exercise a large range of discretion in voting
Section 18 of the corporations law (1940s version of 218)

Voting trust is substantive voting trust not form

Not going to be tricked by form to the substance of the transaction
When the voting trust is statute is the only way to create a voting trust
Pooling agreement is in substance a voting agreement and is invalid

If valid is it effectively enforceable

Loos has no ability to enforce his decision
Find the provision reasonable and because it was not enforceable it is not a voting trust and there is no separation of the voting from the stock

Abercrombie v. Davis


A-E all have 300 shares and the corporation has

other on the board
Agree as directors to elect each other officers

Stoneham Pres, McGraw VP, McQuade Treas
Also salaries agreed

Then agree that no changes in any matter regarding business policy except as the three unanimously agree
Stoneham wanted the agreement because he is giving up control on the shareholder level and he wants to maintain control
Mc and Mc wanted an interest in the company as shareholders, directors, officers, and salaries
McQuade challenges Stoneham’s use of corporate funds


Stockholders may combine to hold together
Manes v. Powell

Agreement by directors was held to be invalid

Directors don’t get their power from the shareholders, it is original and undelegated
Affirmative statutory grant

Directors had duty to act for the good of the corporation and use their best judgment
Stockholders may not by agreement control the directors and their powers vested by virtue of their office

Clark v. Dodge


Drug company and Dodge owns 75% of the shares
Clark who owns 25% is the only one who knows the trade secrets
Dodge tells Clark to tell the formulas to Dodge’s son in exchange for an agreement not to fire him as GM and to allow him to always be on the BoD