For Your Business

Cross Option Agreement Solicitors in Farnham

If you are running a limited company business, you will usually be advised to put a cross option agreement in place to safeguard your organisation for the future. The agreement will set out what would happen to shares owned by an individual after their death.

Without a cross option agreement, those inheriting the deceased’s estate would be left with shares that they might be unable to sell. Alternatively, the business could suffer if they were retained by deceased’s beneficiaries or sold to a third party who might not have the business’s best interests at heart.

A cross option agreement can also provide tax protection to the deceased’s estate by qualifying the shares for business property relief.

At BakerLaw, our company and commercial lawyers can work with you to put the right cross option agreement in place for your organisation. We will discuss your needs with you and provide advice that is tailored to your unique circumstances.

Our cross option agreement solicitors have extensive experience across a wide range of sectors and the sound commercial understanding needed to effectively protect businesses against future disruption.

Our cross option agreement team can help with:

  • The right cross option agreement terms for your circumstances
  • Drafting a strong cross option agreement for use by your limited company or partnership
  • Tax implications relating to cross option agreements and Inheritance Tax

You can contact your local BakerLaw office or email us at enquiries@baker-law.co.uk.

Our expertise with cross option agreements

The right cross option agreement terms for your circumstances

We will discuss your situation with you and advise you on the right cross option agreement to provide shareholder protection and certainty for the future. This will include methods of valuing the shares or partnership holdings, time limits for taking action and methods of dispute resolution.

Drafting a strong cross option agreement for use by your limited company or partnership

We will draft a cross option agreement for consideration by all shareholders or partners and work to agree on a final version that is acceptable to everyone involved. We can advise you on the choices available to you and also on other ways to help your business deal with succession and ensure continuity for the future.

For more information in respect of our services, see our shareholders' agreements page.

Tax implications relating to cross option agreements and Inheritance Tax

A cross option agreement needs to be carefully drafted if it is to be relied upon to protect shares from exposure to Inheritance Tax. We can discuss the tax implications that might arise after a death and how to take advantage of business property relief.

Cross option agreement FAQs

What is a cross option agreement?

A cross option agreement has some similarities to a share option agreement, setting out how shares will be dealt with in the future. In the case of a cross option agreement, it specifies what will happen to an individual’s shares in the event that they die.

How does a cross option agreement work?

The deceased’s beneficiaries can use the cross option agreement to force the company’s other shareholders to purchase the deceased’s shares. This will generally be at market value as at the date of death and the cross option agreement will generally set out the mechanism for agreeing on the price to be paid, for example, by engaging a professional valuer. It will also include details of how any dispute will be dealt with.

Similarly, the surviving shareholders can use the cross option agreement to require the deceased’s beneficiaries to sell them the shares. This means that the shareholders can prevent the shares from being sold elsewhere or retained by individuals without any other interest in the business.

The purchase of shares or a share in a partnership from the deceased’s estate can be funded by putting an assurance policy in place at the same time that the cross option agreement is signed. This will pay out on the death of a shareholder or partner, providing the surviving shareholders or partners with funds to purchase the deceased’s holding.

Who can enforce the sale if a partner dies under a partnership cross option arrangement?

A similar agreement can be put in place by those in a partnership. If one of the partners were to die, then either their beneficiaries, the deceased’s estate or the remaining partners could force a sale of the deceased’s share in the partnership.

Is a cross option agreement legally binding?

To take advantage of business property relief, a cross option agreement must give those involved the option to require the sale or purchase of shares, rather than a binding obligation for this to happen. This means that the deceased’s estate has the option to make the other shareholders buy the shares and the shareholders have the option to make the deceased’s estate sell the shares.

The agreement is not, therefore, a binding contract as it gives those involved the option to take action and not an obligation to do so. Either party can choose to take up the option to force the other to act, but neither is compelled to do so.

Contact our cross option agreement solicitors in Farnham

If you are a shareholder or partner in a business, we can advise you on the terms of a robust cross option agreement. 

You can contact your local BakerLaw office or email us at enquiries@baker-law.co.uk.