When family members run a business together – whether as partners or shareholders in a family company – a critical question is, what should happen in the unfortunate circumstances where one of them dies unexpectedly? Without clear planning, the deceased’s share may pass to their spouse or children, who may not be involved in the business, and who may not wish (or be able) to take on a role. This can lead to tension, disruption, or even a forced sale.

A cross-option agreement is a legal mechanism that provides a structured solution to this risk. It protects the surviving business owners’ ability to continue running the business, while also ensuring the deceased’s family receives fair value. It is particularly useful in family partnerships or companies involving siblings, where preserving both business continuity and family relationships is a priority.

What is a Cross-Option Agreement?

A cross-option agreement is a mutual arrangement between business owners. It gives:

• the surviving business owners the right (but not the obligation) to buy the deceased’s share of the business; and
• the deceased’s estate the corresponding right to force the surviving owners to buy the share.

These mirror-image rights create certainty: one side must sell, and the other must buy, if either chooses to exercise their option. The agreement typically sets out how the value will be calculated (often by reference to an agreed formula or market valuation) and how the purchase will be funded.

Preserving Continuity

For the surviving family members, a cross-option agreement ensures the business stays in the hands of those running it. It avoids unwanted interference or ownership by in-laws, distant relatives, or third parties unfamiliar with the business or unsuited to involvement. It allows long-term plans to continue uninterrupted – whether in farming, property, retail, or professional services.

It can also help reassure banks, suppliers, and employees that the business has been built on sound foundations, with proper succession arrangements in place.

Financial Protection for the Family

For the deceased’s family, the cross-option provides financial security. Instead of inheriting a share in a private business (which may be illiquid, difficult to value, or hard to sell), they receive cash or other agreed assets, funded typically through life insurance written into trust. This ensures a clean break and avoids potential disputes.

When structured correctly, the arrangement can also benefit from Business Property Relief for inheritance tax purposes, helping to preserve the value of the estate for lineal descendants such as children and grandchildren.

Planning for the Future

Cross-option agreements work best when combined with a well-drafted partnership agreement or shareholders’ agreement and coordinated with wills and insurance policies. They should be reviewed regularly – especially where ownership or family circumstances change.

If a family business involves siblings or multiple generations, a cross-option agreement may be a simple but powerful way to protect both the business and loved ones.