Cross Option Agreement | Director Share Protection Insurance
Date: 11 August 2017 Author: Lewis Cable
Why Your Business Might Need a Cross Option Agreement

Why Your Business Might Need a Cross Option Agreement

A cross option agreement is a legal agreement entered into by shareholders of private limited companies. Under such an agreement, shareholders grant other shareholders so-called put & call options over their shares (exercisable upon their death), as well as taking out life insurance written in trust for other option holders. Before exploring why your business may need such an agreement, let’s see what this means.

cross option agreement

Explaining the Cross Option Agreement

Also frequently referred to as a put & call or double option agreement, a cross option agreement is a preferred shareholder protection insurance vehicle, as it provides:

  • Surviving shareholders with the choice of buying the deceased shareholders’ business share. This in turn enables surviving shareholders to ensure control over the business and that it remains in the right hands.
  • Legal representatives of the deceased shareholder’s estate the option to sell his/her shares to the remaining shareholders. This, of course, provides the deceased shareholder’s dependents with willing buyers and cash, rather than shares and an interest in the company.

In either case – whether these legal representatives wish to sell or the remaining shareholders wish to buy – this agreement ensures that this option is exercised. A cross option agreement is set up in this fashion to make sure there is no binding sale. In certain circumstances, for instance, neither of the parties involved may wish to exercise their option.

Why Your Business Might Need a Cross Option Agreement

Without suitable shareholder director share protection insurance and an accompanying cross option agreement, the death of a shareholder/business owner could leave a company financially unable to purchase the deceased owner’s shares.

In such a case, dependents of the deceased owner/shareholder with no interest in or knowledge of the business may gain part control over the company or potentially sell their inherited shares to competitors. Such a scenario could obviously have a significant detrimental effect on a company – which makes the importance of having a director share protection insurance & cross option agreement in place to protect your business.

Director Share Protection Insurance

While we cannot advise you on the cross option agreement as this is a legal matter that needs to be handled by legal professionals, we can advise you on and assist you in finding the most suitable shareholder/director share protection insurance policy for you and your company.

To learn more, please do not hesitate to call us on 01279 315 013, e-mail us at: info@spectrumfa.co.uk or contact us online today.

 

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