For Business Owners

Planning for the future is central to all our advice and this is true whether we are advising individuals or businesses. There are significant benefits to putting in place plans for a business in the event of the death of one of the owners and also pitfalls of failing to take professional advice.

One of the most important considerations is establishing a Cross Option Agreement. A well-considered Cross Option Agreement protects all parties and ensures:

  • the surviving business owners retain control of the company, and
  • the deceased’s estate receives a fair value

When a Cross Option Agreement is combined with a By-pass Business Relief Trust for the deceased’s share in the business, it can preserve the Inheritance Tax benefits for future generations.

Few companies have the correct Agreements

Unfortunately, most businesses do not have an Agreement in place and sadly, we have seen a few with inappropriate agreements. Whilst some have put policies in place, they have failed to complete the full Cross Option Agreement.

Almost no businesses establish a By-Pass Business Relief Trust

Of those that do put in appropriate agreements, very few put in place valuable By-Pass Business Relief Trusts.

Some companies use template or sample agreements

It is also vital that shareholders seek advice for these agreements from professionals with considerable experience of  cross option agreements. I have known many business owners pass the life company’s template or sample agreement to their solicitor who has little experience in this field.

One size definitely does not fit all. Unfortunately, a large number of financial advisers take on the responsibility of preparing Cross Option Agreements because it is a ‘free’ service to their clients, sometimes with disastrous and potentially very expensive results.

Some of the common oversights are:

  1. Not checking that the Cross Option will comply with the Company’s Memorandum and Articles of Association or the Partnership Agreement.
  2. The Agreement does not accommodate different categories of shareholders
  3. The client sets up the policies but never completes the Cross Option Agreement

Having ensured that a proper Cross Option Agreement has been prepared, clients should have the appropriate Trusts to protect the vital Business Relief?

Learn more about Cross Option Agreements

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