Legal Support

Legal Support & Assistance / Cross Option Agreements

A Must for every business with Shareholders or Partners.

It’s not something many of us want to think about but the death of a shareholder, especially if he or she is also a Director, can have a major impact on a business that hasn’t planned for such an event.

This will be a testing time for all concerned including the beneficiaries of the deceased’s estate and it has to be appreciated that what is best for them might not be what is best for the business especially if the beneficiaries have no experience within the business.

Planning for this eventuality and having a well drafted Cross Option Agreement in place can not only ensure that both parties needs are met but it can also create a tax efficient environment utilising Business Property Relief.

The basis of a cross option agreement is straight forward; each shareholder agrees that following his or her death, the fellow shareholders will have the option to buy the deceased’s shares (in some cases this could also include those of his or her spouse).

Typically the shares would be made available for purchase at market value (a so-called ‘call option’) and that his or her personal representatives (on death) have the option to sell the shares (and, in some cases, those of his spouse) to the continuing shareholders.

If funding the sale/purchase of the shares is likely to be an issue, the shareholders entering into the Cross Option Agreement will take out a term assurance policy. Any amount that becomes payable under the policy is held in Trust by the remaining Shareholders to pay for the deceased’s shares.

Structuring the transfer of shares in this way, it is possible to make sure that the deceased’s shares qualify for business property relief. In valid circumstances this would currently provide 100% relief from Inheritance Tax.

We understand that for most people their business interests are inextricably linked to their personal and family lives and would therefore always recommend that a Cross Option Agreement should be considered alongside personal Legacy Planning.

As mentioned above, it’s not something any of us really want to think about, but it is something most of us intend to get round to.

Why not let us take it off your ‘To Do’ list?

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Why does every business need a Shareholder Agreement?

It is certain that at some stage in the life of the business, there will be a need for change of some sort when decisions have to be made and plans put in place. How and when these decisions are made can test relationships and a code of conduct and pre-agreed rules as to how these decisions are made and put in force will help maintain the stability and direction of the business.

When a company is established there will be a set of Articles of Association attached to it. These are more often than not standard documents issued by Companies House that rarely take into consideration the activity or needs of the company but do stipulate certain rules about its conduct as dictated by Company Law.

A Shareholder Agreement is different. It is an agreement between the owners of a company and sets out how they want to run it and how they will deal with certain events that may arise. It is a legal contract between the shareholders that all who sign it must comply with and gives everyone a point of reference and set of self-made rules for the future.

Successful businesses put in place shareholder agreements to protect the shareholders’ investment in the company, to establish a fair relationship between the shareholders and to govern how the company is run.

Some common ‘What ifs’ that can happen in any business that can be at best highly disruptive and at worst fatal without a Shareholder Agreement in place:

  • What happens if a shareholder dies?

  • What happens if a shareholder who is a director loses capacity?

  • What happens if a shareholder is made bankrupt?

  • What if a Director Shareholder wants to retire?

  • What if we want to issue more shares?

  • What if we want to take on investment or raise finance?

  • What happens if shareholders disagree?

  • What happens if the business is to be sold but a minority shareholder won’t sell?

  • How is the value of the company to be decided?

  • What happens if a director shareholder leaves and contacts my clients?

Let us help you put the rules in place that will help to avoid wasted time and the damage that can be caused by common eventualities.

We refer clients for legal support to a third party provider who is independent of CJP Financial Services.

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Get in touch 0161 764 9944

Financial Options Group is a trading style of CJP Financial Services Ltd an appointed representative of Quilter Financial Services Limited and Quilter Mortgage Planning Limited, which are authorised and regulated by the Financial Conduct Authority. Tax Planning, Employee Benefits. Estate Planning, Wills, Trusts, Lasting Powers of Attorney, Buy to let Mortgages and Commercial Mortgages are not regulated by the Financial Conduct Authority, Quilter Financial Services Limited and Quilter Mortgage Planning Limited are entered on the FCA register ( under reference 440703 and 440718.

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