Does my business need a Cross Option agreement?

As commercial solicitors we often need to speculate on risks and put in place arrangements to mitigate them. Effective risk management, both legally and financially, can release business owners to focus on growth and progress.

Famously, there are only two certainties in life: death and taxes. I am afraid the tax question lies outside the scope of this article but hopefully I can address one particular strategy to manage risk on death – the Cross Option agreement.

For business owners (and specifically here those who trade via a limited company), a will alone may not provide the necessary comfort their affairs will be left in good order. In fact, a will alone can cause difficulty without any further thought.

The problem

Take for example a joint business owner who passes away and his or her estate is left to a spouse. The surviving spouse will inherit shares in a company that they may have no interest or expertise in, and it can leave surviving shareholders with a new business “partner” who wants no involvement.

Notwithstanding the traumatic events that lead to this point, it is not uncommon for disputes to arise and for litigation to follow.

The solution

In short, a Cross Option Agreement is an agreement between the shareholders of a company which is backed by critical illness and life insurance policies taken out against each shareholder’s life.

In essence, each shareholder is granted an option (“call option”) over the other shareholders’ shares, exercisable on death or incapacity.

In that event, the insurance policy provides cash to the remaining shareholder(s) and by the option available to the surviving shareholders in the Cross Option Agreement, the deceased shareholder’s shares can be acquired using an agreed valuation mechanism.

Alternatively, the deceased’s personal representatives can exercise the “put option” which requires the purchase of the shares by the surviving shareholders, utilising the funds from the life insurance policy.

The result is:

  1. Surviving shareholder(s) who control the company and who have not had to finance the purchase out of their own pocket; and
  2. A spouse or beneficiary receiving a cash payment for the shares. For both parties, this is often a much better outcome.

If you already own a business or thinking about buying a business together with a business partner, a Cross Option Agreement is something to consider. Putting in place a Cross Option Agreement requires careful consideration with your legal and financial advisors, so take advice at the earliest opportunity.

It tends to be beneficial to put these arrangements in place early when you are young and in relatively good health, so that your life insurance premiums are as low as possible.

Enjoyed this? Read more from Tim Grover, Harrison Drury

Latest news

1

VARS Technology team up with debt resolution specialists to fight fuel theft David Nichol John Garnett Aydan Jones and Laura Tilley

VARS Technology team up with debt resolution specialists to fight fuel theft

12 Sep 2025

2

University of Lancashire unveils Preston campus installation to celebrate name change University of Lancashire new feature

University of Lancashire unveils Preston campus installation to celebrate name change

12 Sep 2025

3

PM+M welcomes ten new apprentices for 2025 intake Lucy Field, Kate Walsh, Ellie Fisher, Zainab Aswat, Reece Jones, Aisha Bibi Patel, Finley Vila, Uzair Zariwala, Richard Prest, and Charlie Harrison

PM+M welcomes ten new apprentices for 2025 intake

11 Sep 2025

4

ROCCIA strengthens commercial division with senior appointment Andrew Grove

ROCCIA strengthens commercial division with senior appointment

11 Sep 2025

5

Final call for investors: Rossendale community solar project must hit target by November Gary McEwan managing director of Interfloor

Final call for investors: Rossendale community solar project must hit target by November

10 Sep 2025

Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
Sub36 Networking - Follow the signs
Sub36 Deaf Village Social1200
Networking
17 Sep 2025

Sub36 Networking - Follow the signs

The Deaf Village, Blackburn, BB2 5EN

10:00 - 12:00

LBV124 September/October Launch Event
MBP Arc Cinema Preston Opening 205
Networking
18 Sep 2025

LBV124 September/October Launch Event

The Arc Cinema, Preston, PR1 2BL

08:30 - 10:30

CMI Level 5 Management and Leadership Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Management and Leadership Course

Preston Campus, Preston , PR1 2HE

09:00 - 17:00

CMI Level 5 Project Management Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Project Management Course

Preston Campus, Preston, PR1 2HE

08:00 - 17:00

Longridge Soap Box Derby
Screenshot 2025-06-10 090035.png.png
LBV Hub Fundraisers
14 Sep 2025 - 14 Sep 2025

Longridge Soap Box Derby

Berry Lane, Longridge, PR3 3WH

10:00 - 16:30

Preston Tech Connection - The Ultimate Tech Quiz!
Preston Tech Connection Sept 25.png.png
LBV Hub Networking
16 Sep 2025 - 16 Sep 2025

Preston Tech Connection - The Ultimate Tech Quiz!

Society1, Coworking Space, Preston, PR1 3LT

18:00 - 19:00

The Business Network Central & East Lancashire
LBV Hub Networking
17 Sep 2025 - 17 Sep 2025

The Business Network Central & East Lancashire

Stanley House, Blackburn, BB2 7NP

11:30 - 14:15

Cumbria Business Expo 2025
https---cdn.evbuc.com-images-880461633-4862066883-1-original.20241022-110415.jpeg.jpg
LBV Hub Exhibitions
19 Sep 2025 - 19 Sep 2025

Cumbria Business Expo 2025

Carlisle Racecourse, Carlisle, CA2 4TS

09:00 - 15:00

Your Business, Your Region: Making sense of devolution and Local Government Reorganisation
Chorley Council breakfast event new
LBV Hub Networking
23 Sep 2025 - 23 Sep 2025

Your Business, Your Region: Making sense of devolution and Local Government Reorganisation

Worden Hall, Leyland, PR25 3DH

08:00 - 11:00

Preston Freelancer Meet-Up: September
Sept Freelancer (1).png.png
LBV Hub Networking
23 Sep 2025 - 23 Sep 2025

Preston Freelancer Meet-Up: September

Society1, Coworking Space, Preston, PR1 3LT

10:00 - 11:30

Speed Networking with BNI
2.png.png
LBV Hub Networking
24 Sep 2025 - 24 Sep 2025

Speed Networking with BNI

Chorley Football Club, Chorley, PR7 3DU

16:00 - 19:00

The Marketing Meetup IRL: Lancashire - September
TMM Lancashire
LBV Hub Networking
25 Sep 2025 - 25 Sep 2025

The Marketing Meetup IRL: Lancashire - September

Chorley, PR7 2SL

18:00 - 20:00

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV 123 Online Graphic
Subscribe now

Weekly news bulletin