Your Business and Your Legacy: why cross option agreements matter

As a business owner, you have worked hard to build an important asset.  But have you considered what happens to this asset if you or one of your co-directors are no longer with us?

Without a formal strategy, your business and your family’s financial security could be at significant risk!  This is where collaboration between Estate Planning and Corporate Law are vital.

Where it can go seriously wrong

What happens if a shareholder passes away without the correct planning in place?

The impact on the Family: They may inherit shares in a company they do not understand, are unable to manage and cannot easily sell. They may want the cash value and not the responsibility.

The impact on the business and the surviving Director(s): They may suddenly find themselves in business with the deceased partner’s spouse or children, who may lack the expertise to sufficiently contribute to the running of the business but hold significant voting power.

The impact on both the family and the business can be significant; particularly when you add the emotion that comes with losing someone.

The solution?  A properly constructed Cross Option Agreement and a complementing Will

In a nutshell, this is a “pre-nuptial for business partners” which is backed by a well-structured Will.

How it works: The agreement grants the surviving shareholders the option to buy the deceased owner’s share of the business and grants their estate the option to sell it.

To ensure that the agreement is viable and does not significantly impact the operation of the business or the remaining owners, the agreement is supplemented with an insurance policy; this ensures there is sufficient cash available to the remaining owners to buy the share from the estate.

Inheritance tax: A correctly structured Cross Option Agreement can ensure that the shares in the business remain eligible for Business Property Relief which has the potential of allowing you to pass on your interest free of inheritance tax.

George Green Solicitors

Here at George Green, we don’t look at your life in isolation.  Our Private Client and our Corporate teams work in synergy to ensure that your Will is synchronised with your shareholder agreement; your business succession plan is tax-efficient and legally watertight; and your family is protected from the stress of business litigation during what is already a difficult time.

Get your life and business succession ready.  Call today on 01384 410410 or use our online enquiry form.