You set up cross option agreements alongside Shareholder Insurance. On the death of a shareholder, the cross option agreement opens up two options:
The ‘Call’ Option: The other shareholders can buy the deceased’s shares
The ‘Put’ Option: The deceased’s family can sell the shares (the ‘put’ option).
This is also known as a double option agreement.
If a shareholder suffers a critical illness rather than passing away, only the Put Option exists. This gives the critically ill shareholder the option to sell their company shares to the other business owners. But, the company does not gain the right to buy the shares.
This protects a shareholder absent through illness from being forced out of the company and is also known as a single option agreement.
Your company’s articles of association should give each party the option to buy or sell the shares, not an obligation. An obligation could result in an inheritance tax bill, as it may disqualify the shares from Business Property Relief (BPR). If in doubt, we recommend you seek legal advice.