Pooling agreements are contracts where shareholders of a corporation pool their voting rights and create a voting trust. This section explains the semantics of different pooling agreements and their purposes.
Types of Pooling Agreements
-
Corporate Shareholder Control: A pooling agreement allows shareholders to merge their voting rights and control the affairs of the corporation.
-
Cash Pooling Arrangements: Companies can use cash pooling to combine credit and debit positions from various accounts into one, facilitating management of daily working capital requirements.
-
Pooling and Servicing Agreements (PSA): This agreement regulates the activities of a trust that manages bundles of mortgages sold as mortgage-backed securities. The PSA specifies duties of servicers, rights of investors, terms of loans, and payment distribution processes.
-
Land Management: Pooling orders enable efficient production of oil and gas by mandating landowners to lease land for exploration, regardless of individual consent.
-
Shipping Industry: In the shipping industry, a pool manager handles the commercial management of ships while technical management is kept with the individual ship owner.
-
Rental Pools: Rental pools are used to share the usage and expenses of a property among various parties, allowing for tax deductions from generated passive income.
Purpose and Benefits of Pool Agreements
A pooling agreement has multiple purposes:
- It merges assets and liabilities into a new entity with its own governance structure.
- It spreads the risk and increases potential profit by pooling resources, such as in mutual funds or ship-owner consortiums.
- It facilitates avoidance of taxes on exchanged stocks during a corporate merger.
Investors also enter pooling arrangements to distribute losses more predictably across a group rather than individually, which is common in the insurance sector.
In the ship-owning industry, pooling is a collaborative means to maintain market relevance and streamline operations without seeking public equity.
What is a Pooling and Servicing Agreement (PSA)?
A PSA is crucial in the finance industry, particularly for controlling mortgage trust activities.
- Securitization Process: It manages how multiple mortgages are bundled and sold as securities to investors.
- Operational Rules: It determines servicer duties, investor rights, loan terms, and the method of payment distribution to ensure transparency and accountability.
- Legal Structure: It establishes binding regulations for the sale and transfer of mortgages into a trust, with definitions that can vary among agreements.