We explain plainly what a cross option agreement does when a shareholder dies. It helps a family realise the value of the deceased owner’s shares while letting surviving owners keep control of the business.
In owner-managed limited companies this approach links estate planning with practical business continuity. We focus on the two needs at once: the family’s need for fair value, and the company’s need for steady leadership.
We will show what documents to prepare, the funding choices such as life cover in trust, and why the arrangement must be an option rather than an obligation to protect reliefs like inheritance tax. For further detail on business succession, see our business succession planning guide.
Key Takeaways
- These agreements let families realise value while keeping the business operating smoothly.
- Decide early on valuation, funding and exercise periods.
- Life insurance in trust often provides the cash when it is needed most.
- The arrangement must remain an option to secure key reliefs such as inheritance tax.
- Review the documents periodically as the company and family situation changes.
Why business owners need a plan for shares on death
When a shareholder dies, their shares usually join the estate and can create immediate uncertainty for everyone involved. We explain what typically follows and why a simple Will alone may not be enough.
What happens to deceased shares under a Will or intestacy
On death, shares normally form part of the estate and pass under the Will. If there is no Will, intestacy rules decide who receives them.
That means beneficiaries may suddenly own a stake in a business without cash or experience to manage it.
Common problems when beneficiaries inherit business shares
- Beneficiaries often want to sell to realise value, but finding a ready buyer with cash can take months.
- Others keep the shares and become involved in decisions they don’t understand.
- Disagreements over dividends, strategy or control can follow, making grief even harder.
Risks to surviving shareholders and the company if no agreement exists
Remaining shareholders can end up in business with family members who have different aims. Or they risk shares being sold to an outsider.
“Uncertainty around ownership can unsettle staff, customers and lenders at the worst possible time.”
For families this can mean assets that were meant to protect them instead become a long-term problem.
We also provide practical estate guidance to help you secure your family’s future: secure your family’s future.
How cross option agreements work with surviving shareholders and beneficiaries
A clear route for shares after an owner dies keeps a business trading and reduces family stress.
In plain terms: a cross option agreement is a pair of matching rights that creates a straightforward way for shares to move from an estate to those who run the company. It sets a pre-agreed value and a time window for a sale so nothing is left to chance.
Put and Call basics: surviving shareholders often hold a Call right to buy. If they do not act, the estate holds a Put right to force a sale. This sequence means beneficiaries are not left owning trading shares without cash.
Why it prevents conflict: remaining shareholders keep control to run the business. Beneficiaries receive fair value without negotiating with strangers or waiting for a buyer.
Two common structures exist:
- Shareholder buy-out — existing owners buy the deceased shares and keep them in private hands.
- Company buyback — the company purchases the shares, which can simplify voting and dividend issues.
Put these measures in place while relationships are good. For practical guidance on continuity and legal detail, see our continuity guide.
Funding the buy-out: life insurance, trusts and practical protections
Funding a buy-out is the practical heart of any reliable shareholder arrangement. Without cash, an agreed transfer can stall and leave family and business exposed.
Shareholder Protection Insurance is the common solution. A life insurance policy provides immediate cash so surviving shareholders can buy the deceased’s shares without harming company cashflow.
Policies are usually written into a trust. That keeps the proceeds outside the estate for inheritance tax relief and helps preserve family assets.
Trusts are often discretionary and flexible. Trustees are commonly surviving shareholders, acting together. An express power allowing trustees to benefit avoids uncertainty when proceeds are used to buy shares.
Term length matters. Policies often match the agreement term so an insured person who later becomes uninsurable does not leave a gap.
- Critical illness cover may sit alongside life cover. In some cases a single option structure lets an ill shareholder force a sale without others forcing a sale.
- Trust-based protection can reduce exposure to divorce, bankruptcy, remarriage and long-term care assessments.
In short: a well-drafted insurance policy plus a flexible trust turns legal rights into a practical process that protects the business and the family. For wider estate guidance see protect your family’s future.
Putting cross option agreements and inheritance tax planning uk into practice
We start with a short checklist so you can turn good intentions into a working plan.
Agreeing share value and keeping it under review
First, pick a valuation method. You can use a fixed price, market value or a simple formula.
We advise a review every three years. Regular checks keep the price fair as the business grows or shrinks.
Drafting the agreement so it remains an option, not an obligation
Crucial point: draft the document as a genuine right to buy or sell, not a binding sale. That helps protect business property relief.
Use clear completion mechanics: who acts first, timing, and payment terms.
Aligning company documents
Ensure the Articles of Association and any shareholders’ agreement match the rights in the arrangement.
Mismatched paperwork can block a transfer or cause disputes. Fix this early.
Updating Wills so the plan works for the estate
Update Wills to reflect the arrangement. That tells executors and beneficiaries what to expect.
Make the life policy and trust details clear to avoid delays in estate administration.
Completion mechanics and refusal protections
Set an option period, state dividend treatment during that time and define how transfers are registered.
Include fallback rules if someone refuses to complete. For example, enforced transfer by directors or a dispute route to arbitration.
| Step | Action | Timing | Why it matters |
|---|---|---|---|
| Valuation | Agree fixed or formula method | At drafting; review every 3 years | Keeps price fair and predictable |
| Drafting | Make a genuine right, not a sale | With legal counsel | Preserves business property relief |
| Document alignment | Match Articles and shareholder deeds | Before signing | Prevents legal blockages |
| Wills & trust | Update Wills; align life policy trust | Annually or on change | Smooth estate administration |
For further guidance on putting this into practice see our business succession guide.
Conclusion
A robust arrangement preserves day-to-day control while making cash available to the family quickly.
Well-made plans aim for three clear outcomes: continuity for the business, control for surviving shareholders and fair value paid efficiently to the family.
Focus on a few core actions: agree a valuation method, draft genuine rights not obligations, fund the buy‑out with suitable life cover, place proceeds in a trust and align all company and Will documents.
Small drafting errors can undermine reliefs. That risk means templates often fall short. Seek specialist advice where trusts or reliefs matter.
Review your Articles, shareholder documents and Wills. Then speak to a qualified adviser to tailor an approach that protects both the company and the family at the hardest time.