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Cross Option Agreements for Business

A Cross Option Agreement deals with what happens within a company upon the death or critical illness of one of the shareholders. There are potentially some undesirable outcomes for the unfortunate shareholder and also the company:

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  • The surviving shareholder(s) may wish to purchase the shares of the deceased shareholder but the next-of-kin or Personal Representatives of the deceased shareholder may not wish to sell the shares back;
     

  • The widow/er of the deceased shareholder may wish to have involvement in the running of the business, which the surviving shareholder(s) may not appreciate;
     

  • If the surviving shareholder(s) refuse to buy back the shares then the next-of-kin of the deceased shareholder may be left holding shares that are not capable of sale and no way of turning those shares into cash.​

We can advise on and work with you to prepare Cross Option Agreements for your business.

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Note that these agreements are suitable for Limited Companies only and are not applicable for partnerships.

So how does a Cross-Option Agreement help?​

 

  • A cross-option agreement is a simple contract between shareholders in a company that gives the surviving shareholder(s) an option to buy back the shares of the unwell/deceased shareholder.

 

  • It contains a corresponding option that gives the next-of-kin the ability to force the surviving shareholder(s) to buy back the shares and thus turn paper shares into real money.

 

  • These corresponding or crossing ‘options’ give the document its name.

Funding the share purchase

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  • A secondary problem in this scenario is that the surviving shareholder(s) may not have access to sufficient funds to buy back the shares when called upon to do so.

 

  • This can be planned for by each shareholder taking out insurance on the life of the other, or the company taking out insurance on the lives of the shareholders.

 

  • An Independent Financial Adviser would usually make insurance arrangements and is not a service ISUK directly offers.

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