Close Corporation Plan
Definition of "Close corporation plan"
Prior arrangement for surviving stockholders to purchase shares of a deceased stockholder according to a predetermined formula for setting the value of the corporation. Often, the best source for its funding is a life insurance policy in either of these forms: (1) Individual Stock Purchase Plan (Cross Purchase Plan), much like the partnership cross purchase plan. Each stockholder buys, owns, and pays the premium for insurance equal to his/her share of the agreed purchase price for the stock of the other stockholders. (2) Corporation Stock Purchase Plan (Stock Redemption Plan), similar to the partnership entity plan is a better choice if the number of stockholders is large. The corporation purchases and pays the premiums on the amount of insurance needed to purchase the decreased stockholder's interest at the price set by the predetermined formula. These premiums are not tax deductible as a business expense, but the death benefits are not subject to income tax. Life insurance owned by the corporation is listed as an asset on the corporation's balance sheet. Ownership of life insurance on the stockholders thus increases the corporation's net worth, and if permanent insurance is purchased, its cash value would be available for loans in the event of business emergencies.
Popular Insurance Terms
Physical contact of an automobile with another inanimate object resulting in damage to the insured car. Insurance coverage is available to provide protection against this occurrence. ...
Agency that sells insurance policies from both a stock insurance company and a mutual insurance company. ...
Transaction in which the property owner (for example, a pension fund) agrees to pay the insurance company a rate of return tied to the fluctuations in real estate prices. In return, the ...
Provision that covers a business to be protected under a reinsurance treaty. The class either can appear at the beginning of the agreement or may be included in the retention and limits ...
Evaluation of the demographic characteristics of the entire group (such as age, sex, morbidity, mortality), as opposed to the evaluation of individuals in that group. ...
Figure in a mortality table derived by dividing the number of people alive at the end of a given year by the number of people alive at the beginning of that same year. ...
Life insurance distribution system under which the state underwrites and sells life insurance to any resident of Wisconsin who makes application. ...
Plan under which life insurance is substituted for retirement income. Under the plan, a married individual selects a single life annuity payout from the pension plan, which will generate ...
Law by which many states attempt to regulate insurers who are unlicensed in those states. With a few notable exceptions, such as re insurers, insurance companies must be licensed in the ...
Have a question or comment?
We're here to help.