Cross Option Agreement (COA) & Berwyn Property Services Ltd

To protect our clients, we offer a First Charge security on Properties we buy using clients’ funds, for say a refurb and then either refinancing and renting or selling the property. For added security and rigor during this process, we will use what’s called a Cross Option Agreement (COA) for the client and myself. In the unfortunate event of death of myself then this agreement would be used to simplify the paperwork and forms an important part of a limited company's succession planning. Essentially this COA is a legal contract between the shareholders of a private limited company that facilitates the sale or purchase of a shareholder's shares if they should die. (If one of the shareholders were to sadly die during a Refurbishment then the steps taken under the COA simplify the sale of shares for those dealing with the deceased estate.) 

In my view these agreements contribute to maintaining business continuity and safeguarding the interests of all parties involved, including employees. A COA guarantees that if a shareholder should die, the surviving shareholders will have the option to buy (put) their shares at a fair price. It also enables the initial recipient of those shares i.e. the deceased's beneficiaries, to have the option to sell (call) the shares to the other shareholders. 

The benefits of a having a cross option agreement in place alongside insurance provides the necessary funds for the transfer of shares. Without insurance, the remaining shareholders may face financial pressure if forced to purchase shares without the available funds. I hope this shows we have thought of all aspects of the Client Agreements and adds an extra layer of security for those working with us in 2024. 

The danger of not having a COA agreement when using Clients Funds:  

The risks of not having a COA with a shareholder protection policy are numerous and below are a few headlines: 

  • Without a COA, should a director/shareholder die, their stake in the business could be inherited by a beneficiary that has little or no interest in the company - they could even sell the shares to a rival.
  • The death of a shareholder is often a shock that can bring a variety of challenges within a business and the families affected, not least what will happen with their shareholding. By not having a cross option agreement in place, you could open yourself up for potential complications and even disputes which could otherwise be avoided.
  • For some beneficiaries, receiving shares in a business they know nothing about can be a bit intimidating and create unnecessary worry and anxiety. A COA, along with a Shareholder Protection policy, gives them clarity and certainty, so reducing those fears.

Should you have any questions on these and how they work, then please contact myself on the below number or Email.

(c) 2023 Berwyn Property Services Ltd.