Protect your business with a cross option agreement
What would happen if you or your business partners were to die unexpectedly?
Would the surviving shareholders be able to continue running the business exactly as they want?
Are family members going to inherit shares and become part-owners of the company?
What if family members want to sell their shares, but the surviving shareholders are not in a position that allows them to buy these shares?
And what about the sudden loss of income from the company, is this manageable?
So, what can I put in place?
A cross option agreement provides a solution for those left behind. Surviving shareholders can buy the deceased shareholder’s shares (a call option) if they choose, and the executors of the deceased shareholder/s have the right to sell his/her shares to the surviving shareholders (a put option).
At the same time as creating a formal cross option agreement, shareholders usually take out life insurance policies which are written in trust, so that in the case of a death, the surviving shareholders will receive the necessary funds to buy the deceased’s shares.
Cross option agreements benefit you in the following ways:
- Surviving shareholders have the option to buy the deceased’s shares, therefore retaining control of the business
- There is already a market for the shares if the deceased’s executors wish to sell them
- The deceased’s family receives cash from the sale of the shares
A cross option agreement can also be used where shares are held, not just by directors of the company, but also by their family members. In a situation like this, on the death of a director or shareholder, the surviving director or shareholder has the right/obligation to buy not only the deceased business owner’s shares, but also the shares held by the deceased’s family members.
Contact Us About Your Cross Option Agreement Needs
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