Q&As

Do all shareholders have to be party to a cross option agreement?

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Published by a LexisNexis Corporate expert
Published on: 30 September 2014

What is a cross Option Agreement?

The Purpose of a cross option agreement is to provide a mechanism for the transfer of the legal and beneficial ownership of a Shareholder's shares in the event of their death. Without a cross option agreement being in place, upon the death of a shareholder, the surviving shareholders run the risk of the deceased's shares passing to someone with no interest in the company, leading to potentially undesirable consequences for the company. A cross option agreement is an agreement entered into by the shareholders of a company, under which each shareholder grants to the other shareholders options over their shares which are exercisable on death.

Each shareholder takes out a term assurance policy under which any amount which becomes payable is held on trust by the continuing shareholders to pay for the deceased's shares. Such a policy should be entered into by each shareholder and written under trust, with their fellow shareholders as beneficiaries.

Who are the parties to the cross option agreement?

It

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Shareholder definition
What does Shareholder mean?

An individual, body corporate or other property-owning entity that owns at least one share in a company. Also called members, shareholders are distinct from the directors who manage the day-to-day affairs of the company. Shareholders typically seek to share in the income profits of the company, as well as achieving capital gain through an appreciation in the value of their shareholding. They participate in general meetings to resolve matters of specific importance as regards the constitution, business or corporate activity of the company, in accordance with company law and the constitution of their company.

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