Before entering into the shareholders` agreement, as mentioned above, each shareholder should purchase life insurance or a critical illness insurance policy. It is written in a complete escling document that is returned to shareholders when an unexpected death or illness occurs. The value of the life or critical illness insurance policy should reflect the value of each shareholder`s interest in the corporation. If the shareholders do not have the funds to buy the shares, the immediate idea, if they do not have a shareholders` agreement, is to contact a bank for a loan. This is an unlikely method of payment as they do not trust the stability of the business when an unforeseen circumstance such as a death occurs. When a shareholder dies, his share of the company falls into his estate. This means that it usually passes to a family member. In some cases, this may be what the shareholder wanted, and the family member may want to participate in the business. In most cases, however, the family prefers to sell the share in order to be financially supported after a loss. With the exception of the option period, the terms of the single option agreement are similar in all other respects to the double option agreement in the section above. Second, determine what the fixed value is. By using this method, shareholders can ensure that the appropriate amount of life insurance can be purchased and that the price for which the shares are sold/bought is correct. There was concern that the Spiro-v-Glencrown decision (1991) would provide for the power to make an option as a purchase contract, which meant that no relief was available for commercial real property.
In early 1996, the Capital Tax Office confirmed that its opinion on SP12/80 had not changed and that the case had not been cited as authority on an option establishing a binding sales contract. While there are many advantages to cross-option agreements, it`s important to think about the disadvantages as well. Shareholder agreements are not a binding purchase agreement. If the share agreement includes an agreement to buy and sell, the commercial property exemption, under which the corporation`s stock is eligible, may be forfeited. The client`s lawyer will usually draft the cross-option agreement and help clients ensure their wills are up to date. Also known as a double option agreement or put-and-call agreement, a cross-option agreement is the preferred vehicle for shareholder protection insurance. In the event that the shareholder deducts a policy for serious illness, the agreement is slightly different. This is called a single option agreement. The conditions are such that if a shareholder becomes seriously ill and wants to sell his shares, the remaining shareholders agree to buy them. However, you may not be entitled to the share without the consent of the insured.