Cross-option agreements and the cover behind them
Why it matters
When a shareholder dies, their shares typically pass to their family. The surviving partners suddenly have a co-owner they never chose. Cross-option agreements — coupled with Term Assurance — solve this: the family sells the shares back at a pre-agreed value, funded by the insurance payout.
Without the structure, the family either receives no income (illiquid shares) or the business is forced into a distressed sale.
How it works
Each shareholder is insured under a Term Assurance policy for the value of their stake, written into a suitable trust for the other shareholders. A cross-option agreement gives both sides the right (not the obligation) to trigger the buyout. On death, the payout funds the purchase; the family gets cash, the business keeps control.
Who it suits
Any business with two or more owners, particularly where the business is worth £500k or more and the family would not want to be locked into shares they cannot sell.
What's involved
This is regulated insurance advice combined with legal drafting of the cross-option agreement. The introduction goes to a regulated adviser for the cover; the agreement itself is drafted through our network of solicitors.