Why is a Cross Option Agreement Required for Business Protection Insurance?

I am researching Shareholder Protection Insurance and wanted to know the purpose of a cross-option agreement and what this means for my business.

Question asked by Luke Drake
Compare Top 10 UK Insurers
Providing Whole of Market Advice
Type of Cover
Company Name
 
Number of Employees

Answered by Tom Conner

cross option agreement can also be known as the double option or put and call agreement.

As the preferred vehicle for Shareholder Protection Insurance, the cross option agreement provides the surviving shareholders with the option to buy the deceased business owners share of the business.

In addition to the surviving shareholders being able to call their option to buy the shares, the legal representatives of the deceased’s estate also have the option to sell the shares of the deceased business owner to the remaining shareholders.

In either case, whether the remaining business owners want to buy the shares or the legal representatives want to sell, the agreement ensures the option is exercised.

The cross option agreement is set up in this manner to ensure there is no binding sale, i.e. in certain circumstance neither party could exercise their option which means business property relief for inheritance tax purposes can be preserved.

In the process of setting up the appropriate business protection it should also involve setting up a cross option agreement with all the directors / partners in the business, enabling the remaining directors or partners to purchase the share of the business from the deceased’s estate.

This agreement in turn provides the dependents with a willing buyer and with cash, instead of shares or an interest in the business ensuring the right people remain in control of the business.

Sam Barr-Worsfold, Business Protection Expert at Drewberry, offers valuable information and advice regarding Shareholder Protection Insurance.

 A cross-option agreement is the backbone to any Shareholder Protection policy, so it needs to be set up correctly. Putting together a cross-option agreement can be complicated, but fortunately Drewberry has a team of business protection experts on hand to help. You can call us any time for advice on Key Person Insurance and cross option agreements – we’re available on 02074425880.

Sam Barr-Worsfold
Business Protection Expert

cross option agreeement
 
shareholder protection
 
business protection
 
This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.
Compare Top 10 UK Business Insurers

Frequently Asked Employee Benefits Questions

 
I’ve been looking into providing Critical Illness Cover for my employees, but do I have to pay...
 
I’ve been looking into arranging Group Income Protection Insurance for my employees to provide...
 
I keep hearing people talk about key man insurance but what does it actually cover and what is...
 
We have taken out a sizeable business loan and I am wondering whether it is mandatory or just best practice...
Need Help? Live chat now and get an instant answer from our Experts...

Neil
Pensions

Victoria
Insurance
Our Latest Reviews
Trevor Massey
22/01/2019

Excellent service from start to finish. Both Jack & Jake were both helpful and polite through the process. I would recommend Drewberry to family and friends.

Robin Condliffe
12/02/2019

Victoria Slade has been consistently prompt, personable, efficient and a great communicator. It is the first time that we have had straightforward dealings with financial services since becoming qualified doctors 20 years ago. Well done!

Adriana Fouche
31/01/2019

Oliver was great at explaining things, with patience. He called back when he said he would, and spent a lot of time to make sure the policy meets my needs.

We are rated 4.9/5 based on 2033 independent client reviews.
To read more of our independent client reviews click here →
REVIEWS
EXCELLENT
4.92 / 5 Average
2033 Reviews
Mr B
Overall Rating
Excellent customer service and I'm delighted with my new insurance policy.
H CONDLIFFE
Overall Rating
Victoria Slade has been consistently prompt, personable, efficient and a greta communicator. It is the first time that we have had straightforward dealings with financial services since becoming qualified Drs 20 years ago. Well done!
K Szymkiewicz
Overall Rating
Rauri Taylor is Independent Protection Expert who you want to help you with any Pensions, Investments & Insurance. He helped me made right choice.
S Brocklehurst
Overall Rating
Professional service, Oliver seemed genuinely interested in getting the right product for me. I was given plenty of options and everything was described fully when required. I felt no pressure to purchase a product.
G Bigga
Overall Rating
Helpful, knowledgeable and efficient and able to find great prices. I would highly recommend