A cross option share agreement is a legal contract between shareholders of a company that allows them to buy or sell their shares in the event of certain trigger events, such as death, disability, or retirement. This agreement is often used in closely held companies where a small group of shareholders own a significant portion of the company`s shares.
The purpose of a cross option share agreement is to provide a mechanism for shareholders to exit the company should they become unable or unwilling to continue holding their shares. By having a predetermined agreement in place, it can help avoid disputes and provide a smooth transition of ownership.
In a typical cross option share agreement, each shareholder agrees to provide the other shareholders with a first right of refusal to purchase their shares should they become available for sale. This means that if a shareholder dies, for example, their shares would first be offered to the other shareholders before being sold to an outside buyer.
The agreement will also typically include provisions for setting the price of the shares and determining how the purchase price will be paid. This may include options for paying in installments or using company profits to fund the purchase.
Having a cross option share agreement in place can provide numerous benefits for shareholders. It can help ensure the continuity of the company by preventing outside buyers from acquiring large portions of the company`s shares. It can also help avoid disputes between shareholders by providing a clear process for selling shares.
Additionally, a cross option share agreement can help provide financial security for the shareholders. By having a predetermined price and payment plan in place, it can help ensure that shareholders receive fair compensation for their shares should they need to sell them.
In conclusion, a cross option share agreement is a valuable tool for shareholders in closely held companies. By providing a mechanism for selling shares in the event of a trigger event, it can help ensure the continuity of the company and avoid disputes between shareholders. If you are a shareholder in a closely held company, it is important to consider implementing a cross option share agreement to protect your investment.