Cross option agreements

A cross option agreement is triggered upon the death of a shareholder. It gives surviving shareholders the right and the obligation to buy the deceased shareholder’s shares. Life insurance policies are taken out at the same time as the cross option agreement, providing the funding for such an acquisition.

Cross option agreements should be entered into by all shareholders of a private company. Failure to do so means that pre-emption rights, covered in the articles of association, will govern restrictions placed on surviving shareholders.

These restrictions can often be unsatisfactory for all concerned. Under pre-emption rights, the personal representatives of the deceased shareholder will be obliged to offer the deceased shares to existing shareholders before any one else. Unfortunately, the existing shareholders may not have the funds to purchase them, leaving the representative with shares in a company that they cannot sell.

Alternatively the existing shareholders may wish to purchase the deceased’s shares. This is typically to prevent such shares being held by someone that they do not know.

Linder Myers solicitors can assist you in drafting a cross option agreement for shareholders. It ensures that, in the event of your death, your personal representatives can sell your shares, enabling them to receive the expected remuneration.

From the point of view of the company, it allows greater control within the organisation.

A cross option agreement needs to be carefully drafted to ensure that it is a binding contract at the relevant time. It is important to ensure that the agreement does not contradict the company’s articles of association or prejudice any inheritance tax and business property relief available to the company. Linder Myers can advise you on all aspects of the agreement to ensure the best possible outcome for shareholders.

We have a highly regarded and experienced corporate commercial team. We have comprehensive experience in drafting cross option agreements. We have links to a wide range of independent financial advisors and banks who are able to suggest suitable life insurance products for the purpose of a cross option agreement.

Our fees will vary depending upon the circumstances of each agreement. Please contact us to discuss your requirements and we will provide a fixed quotation for providing a bespoke agreement to meet your requirements.