Cross-Option Agreements Explained: How They Protect Both Your Business and Your Family

When a business owner dies or loses capacity, their shares or partnership interests don’t automatically pass to the remaining owners.
Without a clear agreement in place, control of the company can suddenly shift to a spouse or family member who may have no involvement in the business at all.

That’s where a Cross-Option Agreement becomes essential.

It’s a legal arrangement that balances two priorities:
keeping the business running smoothly for the co-owners,
and ensuring the deceased owner’s family receives fair value for their share.

What Is a Cross-Option Agreement

A Cross-Option Agreement gives each business owner the right to buy or sell their share in the company if another owner dies or becomes incapacitated.
It’s often linked to a life insurance policy that provides the funds needed for the surviving owners to buy the shares.

The “option” part means no one is forced into an unwanted sale.
Instead, both sides have a right to choose:

• The surviving owners can buy the shares from the deceased’s estate
• The estate can require the sale of those shares to the remaining owners

This ensures control stays with the people already running the company, while the deceased’s family receives the financial value of their stake.

Why It Matters

Without a Cross-Option Agreement, a few common problems appear quickly:

• The family of the deceased may inherit the shares and voting rights, giving them influence over business decisions
• The surviving owners might be unable to make major decisions without their approval
• The business could stall while both sides argue about valuation or control

With a Cross-Option in place, everyone knows what will happen and at what value. The business continues operating, and family members are paid promptly without disruption.

Including It in Wider Succession Planning

A Cross-Option Agreement works best when it sits alongside a Business Will and appropriate insurance cover.

• The Business Will confirms who inherits the deceased’s shares and ensures the estate receives the correct proceeds
• The life insurance policy funds the buyout, so no one has to find cash personally
• The Cross-Option Agreement provides the legal mechanism to transfer ownership smoothly

Together they prevent disputes, delays and financial strain for both sides.

Advantages of Having a Cross-Option Agreement

• Keeps ownership and decision-making within the business
• Guarantees the deceased’s family receives full and fair market value for their shares
• Prevents conflicts between families and co-owners
• Protects business reputation and continuity at a sensitive time
• Can be funded through life insurance so no one is left short of cash

Drawbacks to Consider

• It requires professional drafting and coordination with your company articles and shareholders’ agreement
• Valuation must be realistic and reviewed regularly
• Premiums for linked insurance policies can rise with age or health changes

However, the cost of setting it up is usually small compared to the disruption caused when an owner dies without one.

What Happens If You Do Not Have One

If no Cross-Option Agreement exists:

• The deceased’s shares pass to their beneficiaries under their Will or intestacy
• The surviving owners may have no right to buy them back
• The business could end up jointly owned by people with conflicting interests
• Disagreements over value can lead to lengthy and expensive legal disputes

According to a 2024 survey by Legal & General, only around 35 per cent of small and medium-sized businesses in the UK have any formal succession agreement in place. That leaves most companies vulnerable if a key partner dies unexpectedly.

In Summary

A Cross-Option Agreement ensures that your business and your family are both protected.
It gives clarity, keeps control in the right hands and provides financial certainty when it’s needed most.

• A Business Will protects your estate and beneficiaries
• A Cross-Option Agreement protects your business and co-owners

The best approach is often to have both in place, with insurance to fund the transfer and clear instructions in your Will.

You might need one or both, but knowing which applies to your situation could save your business time, money and stress later.

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