Your Will, Your Shareholders' Agreement and Your Cross-Option: The Three-Legged Stool

For most people, a will is a single document that does a single job: it says where the estate goes on death. For business owners, that description is dangerously incomplete. Your shares are governed by three overlapping legal regimes: the company's articles, any shareholders' agreement, and your will. If they contradict each other, the will loses. If they agree with each other, but produce the wrong tax outcome, HMRC wins. And if there is no funding to actually pay for what you've agreed, everyone loses. The right structure sits on three legs. Kick any one of them out and it falls over.

Leg One: The Will

The will decides who inherits your shares as a matter of succession. It can leave them to your spouse outright, to your children, to a discretionary trust, or in any combination. What the will cannot do on its own is control what your co-shareholders are entitled or obliged to do with those shares after they've been inherited, and it cannot fund the buy-out that any sensible business succession plan requires.

A well-drafted business owner's will usually routes qualifying shares into a discretionary trust rather than leaving them outright to a spouse. Under the reformed rules that took effect on 6 April 2026, the 100% BPR rate is now subject to a £2.5 million allowance per person (transferable between spouses, so up to £5 million between them, with 50% relief on the excess). The transferable element makes the outright-to-spouse route less catastrophic than it would once have been, but the trust route is usually still better: it uses the first spouse's allowance while the company definitely still qualifies for BPR, keeps growth in the shares outside the surviving spouse's estate, and gives the trustees flexibility to appoint benefits between the family as circumstances change.

Leg Two: The Shareholders' Agreement

The shareholders' agreement is the private rulebook between the owners of the company. It supplements the articles of association (which are public and generic) and deals with the commercial questions the articles leave open. For succession purposes, it needs to answer specific questions: what happens to the shares on death, who has the right to buy them, on what timeline, at what price, and what happens if the family and the surviving shareholders can't agree.

Almost every set of standard articles contains pre-emption rights: on any proposed transfer, the shares must first be offered to existing shareholders. That is a good starting point, but it leaves the critical questions unanswered. Are the survivors obliged to buy, or do they merely have the right? At what valuation? Over what period? What if the family need cash now and the survivors can only afford to pay over five years? Without a shareholders' agreement dealing with these questions, the family end up owning shares they can't sell to anyone else (because of pre-emption) and can't force the survivors to buy (because there's no obligation). This is the "widow stuck with 40%" scenario. It is common. It is entirely avoidable.

The shareholders' agreement should also deal with incapacity, not just death. A shareholder who loses capacity but survives can leave the company deadlocked for years unless the agreement, and their Lasting Power of Attorney, cover the ground.

Leg Three: The Cross-Option Agreement

The cross-option agreement is where the succession actually gets funded. Sometimes called a buy-sell or double-option agreement, it gives the surviving shareholders an option to buy the deceased's shares from the estate, and gives the estate an option to sell them, both at a pre-agreed valuation basis. If either side exercises, the sale must complete. Life insurance policies, held in properly drafted business trusts, provide the cash the survivors need to pay for the shares.

Two features are non-negotiable. First, options not obligations. Business Property Relief is lost if the shares are subject to a binding contract for sale at the date of death (section 113 IHTA 1984). HMRC's long-standing position, set out in Statement of Practice 12/1980, is that a "buy and sell" agreement obliging the personal representatives to sell and the survivors to buy is exactly such a binding contract, and BPR is therefore not due. Cross-options preserve the relief because neither side is contractually bound until an option is exercised. A well-meaning "compulsory sale on death" clause achieves the transfer you wanted with the 20% or 40% IHT bill you didn't. Second, the insurance needs to be written into a business trust for the benefit of the surviving shareholders, not paid direct to the deceased's estate. If it lands in the estate, it forms part of the taxable estate and defeats the point.

Done properly, a cross-option delivers three outcomes at once. The family gets fair value for the shares in cash, quickly, on a valuation basis agreed years earlier when nobody was under pressure. The surviving shareholders keep control of the business. HMRC accepts that BPR is preserved because the sale was optional rather than obligatory.

Where the Three Legs Meet

The three documents need to point in the same direction, and they need to be drafted to work with each other rather than against each other. If the will leaves shares to a discretionary trust, the cross-option needs to identify the trustees as the counterparty to the option, not "the estate". If the shareholders' agreement contains a valuation formula, the cross-option should use the same formula rather than a different one. If the articles contain pre-emption rights, the cross-option needs to override them (or fit within them) so that the intended sale can actually happen without a further consent process.

The other common failure mode is the passage of time. A cross-option agreed in 2019 with a life policy set at £500,000 doesn't fund a share value of £1.4 million in 2026. A shareholders' agreement drafted when there were three shareholders no longer works after two of them have left and one new investor has arrived. Business succession documents are living documents. They need to be reviewed every few years and after every material change: a new shareholder, a significant valuation change, a change in family circumstances, a change in tax law (and April 2026 was a big one).

The Firm You Do This With

Most business owners have a corporate lawyer for the shareholders' agreement, an accountant or IFA who arranged the life policy, and, sometimes, a separate private client solicitor who drafted the will. Each is competent in their own layer. None of them owns the joined-up result. That is why the documents so often contradict each other, and it is exactly the problem we set the firm up to fix. We draft the will, the shareholders' agreement and the cross-option as a single structure, checked against the company's articles and the tax rules in force at the time. One conversation, one file, one coherent outcome.

Bonsai Law drafts wills, shareholders' agreements and cross-option agreements together for owner-managed businesses. If your three legs weren't drafted by the same firm, that's the review to book.