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;
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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;
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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.
Note that these agreements are suitable for Limited Companies only and are not applicable for partnerships.
So how does a Cross-Option Agreement help?
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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.
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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.
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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.
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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.
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An Independent Financial Adviser would usually make insurance arrangements and is not a service ISUK directly offers.