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Shareholders’ Agreements and Cross Options

Protect Your Company and Investors

Expert team helping you structure shareholder rights, obligations and protections

A shareholders’ agreement is one of the most important documents for any company with more than one owner. It governs the relationship between shareholders, sets out rights, obligations and potential protections of the shareholders, and provides a framework for decision-making, dispute resolution, and the transfer of shares.

Alongside a shareholders’ agreement, a cross option agreement is another vital legal tool for shareholders, providing certainty and protection in the event of death or critical illness. It ensures that shares can be transferred smoothly, avoiding disputes and protecting both surviving shareholders and the deceased shareholder’s family.

Without a properly structured agreements, unexpected events can create uncertainty, financial strain, and disruption to business continuity.

At Ellis-Fermor & Negus, our experienced corporate team advise business owners and investors on creating robust shareholders’ agreements and cross option agreements that protect investments, put mechanisms in place to resolve disputes, and seek to ensure a smooth operation of the company. Our corporate team have drafted and negotiated hundreds of agreements across the East Midlands for private companies, start-ups, and growing enterprises.

 

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Why choose Ellis-Fermor & Negus?

Expert corporate lawyers specialising in corporate and succession planning.

Expertise in shareholders’ agreements, cross option agreements and business protection.

Practical solutions tailored to owner-managed businesses.

Guidance for private companies, family businesses, start-ups, and joint ventures.

Protect shareholder(s) interests while allowing operational flexibility.

Trusted by hundreds of clients across the East Midlands.

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Meet the team

Smiling female solicitor wearing an orange blazer, representing Ellis-Fermor & Negus, a solicitors' firm in the East Midlands.

Charlotte Stojak

Charlotte joined the firm in 2024 and was appointed Head of Department for Corporate in April 2025. Charlotte qualified as a Solicitor in 2015, after studying Law (LLB) at Derby University and the Legal Practice Course at Staffordshire University. Charlotte has worked at a number of large law firms, gaining invaluable experience and exposure. Charlotte’s…

0115 972 5222

charlotte.stojak@ellis-fermor.co.uk

Charlotte Stojak is based at our Long Eaton Office.

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Jennifer Geary

Jennifer grew up in Long Eaton and first worked for Ellis-Fermor & Negus during her University summer holidays in 2003. She graduated from Derby University in 2004 with a Law Degree and returned the same summer to Ellis-Fermor & Negus as an Assistant to David Negus in the Commercial and Litigation Department to complete her…

01159 835 221

jennifer.geary@ellis-fermor.co.uk

Jennifer Geary is based at our Long Eaton Office.

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Frequently Asked Questions

Yes. If your company has two or more shareholders, a formal shareholders’ agreement ensures clarity and reduces risk by addressing:

  • Decision-making and voting procedures.
  • Dividend and profit distribution.
  • Share transfer rules and exit strategies.
  • Protection of minority shareholders.
  • Mechanisms for resolving disputes.

Without a shareholders’ agreement, disagreements can potential escalate, resulting in costly disputes, operational delays, and even litigation.

1. Shareholder Rights and Obligations

A shareholders’ agreement outlines the rights and responsibilities of each shareholder, including:

  • Voting rights and decision thresholds.
  • Dividend entitlements.
  • Duties of directors who are also shareholders.
  • Confidentiality and non-compete obligations.

This clarity ensures that all shareholders understand their roles and obligations.

2. Decision-Making and Governance

The shareholders’ agreement can set out and define how key business decisions are to be made (whist working in harmony with the company’s articles of association, which can be updated by the corporate team if necessary to achieve this), including:

  • Appointment and removal of directors.
  • Approval of major transactions (e.g., borrowing, asset sales).
  • Reserved matters requiring unanimous (or defined) consent.
  • Procedures for resolving deadlocks.

Clear governance mechanisms reduce the potential risk of operational and strategic disputes.

3. Share Transfers and Exit Strategies

Shareholders’ agreements can address how shares can be sold, transferred, or inherited:

  • Right of first refusal for existing shareholders (known as pre-emption rights).
  • Drag-along and tag-along provisions to ensure that a sale cannot be held up by a minority shareholder as well as give protection to a minority shareholder that they will not get ‘left behind’ on a sale.
  • Valuation methods for share transfers so that this is as fair as possible for all parties.
  • Procedures for voluntary or involuntary exits.

These clauses protect the company and minority shareholders while providing flexibility for shareholders.

4. Dividend and Profit Policies

Shareholders’ agreements can specify:

  • Dividend distribution mechanisms.
  • Timing and approval of payments.
  • Restrictions on reinvestment of profits.

This ensures fairness and prevents potential disagreements over financial entitlements.

5. Dispute Resolution

Even well-structured shareholders’ agreements may encounter disputes. Clauses typically include:

  • Negotiation, mediation, or arbitration procedures.
  • Remedies in case of breaches.
  • Mechanisms to enforce shareholder rights in the event of such breach or dispute.

Step 1: Initial Consultation / Completion of our Shareholders’ Agreement Questionnaire

  • Understand the business structure, shareholder makeup, and objectives of the company and individuals.
  • Identify potential areas of conflict and risk.
  • Discuss desired protections, exit plans, and governance preferences.

Step 2: Drafting the Shareholders’ Agreement

  • Prepare a legally robust, tailored agreement.
  • Review and amend as necessary the company’s articles of association to ensure consistency between the two documents.
  • Include provisions as discussed with the client and therefore as required for voting, profits, dispute resolution, and share transfers.
  • Ensure compliance with the Companies Act 2006 and other relevant regulations.

Step 3: Negotiation and Review

  • Review the draft with all parties.
  • Negotiate amendments to reflect commercial objectives and shareholder concerns.
  • Ensure the shareholders’ agreement balances required protections with operational flexibility and overall objectives of the shareholders.

Step 4: Implementation and Ongoing Support

  • Execute the shareholders’ agreement and maintain records/copies of such.
  • Provide guidance on compliance, governance, and shareholder meetings.
  • Update the shareholders’ agreement as the company grows or shareholders change..

1. Minority Shareholder Protection – Prevents shareholders holding larger amounts of shares in a Company from overriding shareholders with a smaller shareholding unfairly.

2. Disputes Over Profits or Control – Clear clauses on voting, dividends, and decision-making can prevent disagreements.

3. Transfer of Shares – Ensures the company and other shareholders have a say in who can acquire shares.

4. Exit Planning – Provides a framework for selling or buying shares in different scenarios.

5. Dispute Resolution – Potentially reduces the risk of costly litigation by including structured resolution mechanisms.

Our team anticipate these challenges, drafting shareholders’ agreements that protect interests while maintaining commerciality and flexibility.

A cross option agreement gives:

  • The surviving shareholders the option to buy the deceased shareholder’s shares.
  • The deceased shareholder’s personal representatives the option to require the surviving shareholders to purchase those shares.

Typically, the cross option agreement is backed by life insurance policies written in trust, providing funds for the purchase.

This structure ensures:

  • Business control remains with surviving shareholders.
  • The deceased’s family receives fair value.
  • Disputes are avoided.
  • Business continuity is preserved.

Cross option agreements are closely linked to shareholders’ agreements, articles of association, and life insurance policies. They must be carefully structured to ensure:

  • Clear transfer rights and obligations.
  • Alignment with company’s constitutional documents, shareholders’ agreement and insurance policies.
  • Tax-efficient structuring.
  • Compliance with inheritance and capital gains tax rules.
  • Certainty for both surviving shareholders and beneficiaries.

Incorrect drafting can invalidate the arrangement or create unintended tax consequences.

Alignment with Corporate Documents

  • Consistency with articles of association.
  • Interaction with shareholders’ agreement.
  • Pre-emption rights and transfer provisions.

Insurance Arrangements working in collaboration with your financial advisors

  • Policies written in trust.
  • Appropriate valuation mechanisms.
  • Regular policy review.

Tax Efficiency when working in collaboration with your tax and financial Advisors

  • Potentially avoiding inheritance tax complications.
  • Where applicable and possible, preserving Business Relief.
  • Structuring to avoid creating binding sale contracts.

Valuation Mechanisms

  • Agreed fixed valuation.
  • Formula-based valuation.
  • Independent expert determination.

Our corporate lawyers ensure your agreement is legally robust and working in collaboration with your tax and financial advisors to be tax-efficient.

Step 1: Initial Consultation

  • Review business structure and shareholdings.
  • Identify protection objectives.
  • Assess succession considerations.
  • Work in collaboration with your tax and finance advisors to assess tax considerations.

Step 2: Structuring the Cross Option Agreement

  • Draft cross option agreement.
  • Align with articles of association and shareholders’ agreement.
  • Coordinate with financial advisers regarding insurance.

Step 3: Valuation and Insurance

  • Working with your financial advisor, establish the valuation mechanism.

Step 4: Implementation and Ongoing Review

  • Execute agreement.
  • Integrate with succession planning.
  • Conduct periodic reviews as the business grows.

1. Outdated Valuations – Inadequate insurance cover due to business growth.

2. Tax Complications – Incorrect drafting may affect inheritance tax relief.

3. Conflicts with Articles of Association – Inconsistencies can render provisions ineffective.

4. Lack of Funding – Failure to properly structure insurance trusts.

5. Failure to Review – Business changes may make the agreement unsuitable over time.

We help ensure your agreement remains effective and aligned with your business.

Yes. Even small companies (with more than one shareholder) can benefit from a clear shareholders’ agreements that can seek to prevent disputes and clarify rights, obligations and protections for shareholders.

Yes. Shareholders’ agreements can include provisions for amendments, subject to consent from shareholders.

Shareholders’ agreements typically include dispute resolution mechanisms such as negotiation, mediation, or arbitration to avoid litigation.

Yes. A lawyer ensures the agreement is legally enforceable, balanced, and compliant with corporate law.

Articles of association (or sometimes just known as “articles”) govern the company broadly and are public knowledge (as they are filed on the company’s register at Companies House).Whilst a shareholders’ agreement is a private document between the shareholders and sets out agreed arrangements between the shareholders.

Yes. Provisions can be drafted into a shareholders’ agreement, if required, to give such as veto rights, tag-along clauses, and dividend protections safeguarding minority interests.

Timescales vary depending on complexity, the number of shareholders, and negotiations, usually a few weeks to a couple of months.

It looks to ensure that shares in a company can be transferred smoothly if a shareholder dies or becomes critically ill, protecting both the business and the family of the deceased or incapacitated shareholder.

Yes, if properly drafted and executed. It must align with company constitutional documents and any shareholders’ agreement in place.

Most cross option agreements are backed by life insurance to provide funds for purchasing shares.

It should be reviewed regularly, particularly when business value or shareholding changes.

Yes. While often linked, a cross option agreement specifically deals with share transfers on death or critical illness.

A well-drafted shareholders’ agreement is critical to protecting your business, relationships, and investments. Our team provide practical, commercially-focused advice, drafting, negotiating, and implementing shareholders’ agreements and cross option agreements that safeguard your interests and support long-term success.

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