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As solicitors, we understand the vital importance of shareholder agreements and cross-option agreements for businesses which have more than one owner. These legal documents play a crucial role in protecting the interests of shareholders and ensuring the smooth operation of the business even in the event of unexpected changes. Our experienced legal team has a wealth of knowledge when it comes to drafting and negotiating such agreements, so you can trust us to provide you with the protection and certainty you need to take your business forward. Whether you need advice on shareholder agreements, cross-option agreements, or any other legal arrangements relating to your business, we are here to guide you at every step of the way.
A Shareholders’ Agreement is a private, legally binding agreement made between the shareholders of a company and the company itself. The purpose of the agreement is to outline the rights, obligations and relationships among the shareholders of the company including how the company is to be managed by the members, what decisions cannot be made without members’ approval, how the dividends are to be distributed and what restrictions will apply to shareholders if they decide to leave the company.
Why is it important?
A shareholders’ agreement helps to protect the rights and interests of shareholders. It establishes clear guidelines regarding the roles, responsibilities and obligations of each shareholder including voting rights, dividend distributions, share transfers and decision-making processes. These guidelines help minimise the risk of disputes and conflicts among shareholders and detail the process how any disputes should be resolved.
Under a Cross-option agreement, each shareholder grants to the other shareholders put and call options over their shares, which are exercisable on death or critical illness. This means that the surviving shareholders are granted an option to purchase the deceased shareholder’s shares and the personal representatives of the deceased shareholder are granted an option to sell the shares to the surviving shareholders.
As part of this agreement, life insurance policies are written in trust for the other option holders. This ensures that the surviving shareholders will have the amount required to purchase the shares under the put and call options.
A cross-option agreement provides protection for a business, its shareholders and their families by providing certainty and clarity. It can ensure that the remaining shareholders maintain control and ownership of the business and provides a framework for smooth transfer, avoiding disruption to the company’s operations. The corresponding element of the agreement ie the life insurance, also provides financial security for the surviving shareholders and the family of the deceased shareholder. When properly drafted, the agreement can also be a tax efficient way of dealing with shares upon the death of a shareholder as it can help mitigate potential inheritance tax liabilities.
We will promptly arrange a meeting with you to take detailed instructions, advising you on the legal and commercial terms that you will need to consider including within your shareholders’ agreement. We will also advise you on whether new articles of association are necessary and the benefits of obtaining a cross-option agreement. Thereafter, we will draft the relevant agreement(s) in line with your instructions and will send them to you with a report explaining the practical implications of the included terms. A subsequent further meeting may be required to finalise the documents for signature.
Deputy Managing Partner
Please find below some FAQs regarding Shareholders’ Agreement and Cross–option Agreements
No, a cross-option agreement can also cover serious or critical illness, providing options for shareholders and their estates.
You may need a further copy of the company’s articles of association drafting if there is a conflict between the articles and the terms of the shareholders’ agreement. Our solicitors can advise you further on this during initial discussions.
Common provisions include share transfer restrictions, voting rights, dividend policies, dispute resolution mechanisms, board composition and decision making, non-compete clauses and exit strategies. Our solicitors can explain these terms to you further.
Please submit your information and a member of the Poole Alcock team will respond to you as soon as possible. If you have a quick question, please feel free to call 0800 470 0334.
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