Cross option agreement and life insurance for shareholders

When a shareholder in a private company dies, their shares pass to their estate, and the surviving shareholders find themselves in business with a widow, a widower or a family that wants money rather than shares, while the family finds itself holding a stake nobody will buy. A cross option agreement gives the survivors the right to buy and the estate the right to sell, at a valuation, funded by life insurance on each shareholder, structured so that the tax reliefs on the shares are preserved. I draft the agreement, with a briefing session and a note on how it fits the articles, for a fixed fee of £995, delivered in five working days; the insurance is arranged by the shareholders' adviser and the tax by their accountants.

Who this is for

Shareholders in England and Wales in owner-managed companies who want the business to pass to the surviving owners and the value to pass to the deceased's family, without either side depending on the other's goodwill at the worst time.

What matters in a cross option agreement

What happens to shares when a shareholder dies without an agreement

Shares pass under the deceased's will or intestacy to their personal representatives and then to the beneficiaries, who become shareholders with the deceased's votes and dividend rights, subject to any transfer restrictions in the articles (the model articles in the Companies (Model Articles) Regulations 2008 let the directors refuse to register a transfer but do not oblige anyone to buy); the survivors cannot force the family to sell, the family cannot force the survivors to buy, and the company is run by people who did not choose each other. The agreement exists to replace that position with a transaction both sides can require.

How a cross option works and why it is not a binding sale

A cross option gives the surviving shareholders a call option to buy the deceased's shares from the personal representatives and gives the personal representatives a put option to require the survivors to buy, each exercisable within a stated period after the death, so that either side can bring about the sale but neither is bound to sell before death; the structure is used rather than a binding contract to buy on death because a binding contract would mean the shares were held under a contract for sale at the date of death, which can forfeit business property relief under the Inheritance Tax Act 1984 that the shares would otherwise attract, and the accountants should confirm the structure before it is signed.

The life policies, trusts and the money

Each shareholder takes out a life policy on their own life for the value of their shares, written into a trust for the benefit of the other shareholders, so that on death the policy pays out to the survivors outside the deceased's estate and they use the proceeds to pay the estate for the shares; the agreement should record the policies, require each shareholder to keep them in force and to tell the others if they lapse, provide for premiums to be equalised where ages and sums differ, and say what happens if a policy pays less than the price (instalments for the balance) or more (the surplus belongs to the trust); the policies and trusts are arranged by the shareholders' financial adviser, and the agreement is drafted around them.

The valuation and the price the estate receives

The agreement should set the price: a fixed sum reviewed annually, a formula, or an independent valuation on a stated basis at the date of death, with the policy sums aligned to it; the estate receives the price, the survivors receive the shares, and the family does not have to sell a business it cannot run or hold shares it cannot sell. The valuation should be reviewed each year with the policies, because a valuation that has not been updated leaves the family underpaid or the survivors underinsured.

Critical illness and incapacity

The same structure can cover a shareholder's critical illness or permanent incapacity, with critical illness policies funding a purchase of the shares of a shareholder who can no longer work, and the agreement should say whether the options are triggered by diagnosis, by a stated period of incapacity, or by the shareholder's election, and how the shareholder's own interests are protected (a put in their favour, a price that does not discount for the illness); incapacity is more common than death among working-age shareholders, and the agreement should address it in the same document.

Keeping the agreement, the policies and the valuation in step

The agreement should require an annual review of the valuation, the policy sums and the shareholders covered, provide for new shareholders to join and leaving shareholders to be released (with their policy and trust dealt with), sit alongside the shareholders' agreement's other transfer provisions and the compulsory transfer provisions in the articles under section 33 of the Companies Act 2006, and be consistent with each shareholder's will; a cross option that is not updated when the company's value doubles or a shareholder joins is one that will produce a dispute at the moment it is meant to prevent one.

What it costs

Shareholders agreement, £995. An agreement between the shareholders of a private company, with a note on how it interacts with your articles. Five working days.

Buying online forms the engagement on payment. The scope is what the shareholders agreement page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A briefing session with all shareholders together, to work through the questions people avoid asking each other
• A shareholders agreement drafted for your actual situation rather than a precedent with the names changed
• A note on how the agreement interacts with your articles, and whether the articles need amending to make it work
• A plain English explanation of every material choice, so nobody signs something they have not understood
• One round of amendments
• Signature-ready documents

What is not included

• Acting for individual shareholders separately, because I act for you jointly
• Company valuation
• Tax structuring, which needs your accountant and should run alongside this
• Amended articles of association and IP assignments, which I quote separately
• Filing at Companies House
• Resolving a dispute that has already started

Questions I am often asked

Why not just agree that the company buys back the shares when one of us dies?

Because a binding obligation to buy on death can cost the estate the inheritance tax relief the shares would otherwise attract, and because a buy-back needs distributable profits the company may not have. Cross options funded by life cover avoid both problems; the accountants confirm the tax.

Who arranges the insurance?

The shareholders' financial adviser, with the policies written in trust for the other shareholders. The agreement records the policies and requires them to be maintained; it does not sell the insurance.

What if the policy pays out less than the shares are worth?

The agreement provides for the balance to be paid in instalments by the survivors, which is why the annual review of the valuation and the policy sums matters.

Related guidance and services

• Shareholders agreement, £995, the service this page describes
• Contract review, £495
• Employment contracts and handbooks, £595
• Shareholders agreement for a family company
• Shareholders agreement with put and call options

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.