Definition of "Close corporation plan"

Keith Dobbs real estate agent

Written by

Keith Dobbselite badge icon

RE/MAX Dallas Suburbs

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.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Insurance Terms

Insurance coverages for businesses, commercial institutions, and professional organizations, as contrasted with personal insurance. ...

Money expended with the object of profit. The goal of an insurance company is to invest in assets with a rate of return greater than that to be paid out as benefits under its policies. ...

Peril that occurs when personal property of two or more people is mixed to such an extent that any one owner can no longer identify his or her property. ...

Termination of a contractual obligation for immediate performance. For example, under the homeowners insurance policy, if the insurer refuses to pay a claim, the insured (if not satisfied ...

Provision in Social Security: to receive retirement monthly income, a participant must have earned income on which Social Security taxes were paid for at least 10 years or 40 quarters. ...

Risk management control device used to minimize accidents and injuries to employees resulting from an unsafe working environment. For example, potential cumulative trauma disorders losses ...

Provides the same coverage as a comprehensive personal liability insurance policy, plus coverage to exposures that are peculiar to farms, such as farm business operations, farm employees ...

Same as term Debit Insurance: life insurance on which a premium is collected on a weekly, bi-weekly, or monthly basis, usually at the home of a policyholder. The face value of the policy is ...

Same as term Calendar Year Experience: paid loss experience for the period of time from January 1 to December 31 of a specified year (not necessarily the current year). ...

Popular Insurance Questions