A cross-option agreement also serves to ensure that surviving shareholders do not simply retain the life insurance proceeds and purchase the shares, or that the estate of the deceased simply refuses to sell the shares. A trust deed is also required for the proceeds of life insurance to be paid directly to the surviving shareholders after the death of a shareholder, in order to provide them with the funds necessary to purchase the deceased`s stake. If the deceased is the sole director of the company, but there are other shareholders, the surviving shareholders can hold a meeting to appoint a new company director. It is essential to think about what will happen to the business after the death of the business owner. If another family member is in charge to take over the management, this will determine how business interests will be handled. Often, however, a couple has no real idea what will happen to the business if the owner dies unexpectedly. Here, the flexibility of discretionary trust in a will can be particularly useful. The impact of tax planning can be seen in the following example. HMRC considers that where there is a binding obligation to purchase shares after the death of a business owner, BPR is rejected, arguing that the deceased actually has only an interest in the proceeds of the sale and not in the company itself. However, because they are formulated as options, cross-option agreements circumvent this problem.
The death of a shareholder and director can have a large number of negative consequences for a company….