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
Fringe benefit provided by the employer to its employees as sanctioned under the 1981 Economic Recovery Tax Act. Under Internal Revenue Code Section 129, this benefit is nontaxable to the ...
Premium payment made by the policy owner under a universal life insurance policy, usually on an automatic monthly preauthorized bank draft basis. The amount of the payment is established ...
Insurance for which premiums are charged according to the size of the face amount of the policy, so that the greater the face amount, the lower the cost per $1000 unit of insurance. ...
Addition to a life insurance policy stating that when an insured becomes disabled for at least six months, premiums due are waived. Depending on the rider, the insured may begin to receive ...
Fund established to pay specified losses, usually the low severity property losses. This type of account is an excellent device in conjunction with a self-insurance plan, in which the fund ...
Professional liability coverage for a practitioner in a given field of expertise. Coverage takes the form of defending the practitioner against liability suits whether or not with ...
Loan under which the owner of a home receives the equity in the form of a series of monthly income payments for life. Upon the owner's death, the lender institution (usually a bank) gains ...
Coverage for damage to property resulting from riot or civil commotion. Riot is defined by most state laws as a violent disturbance involving three or more (in some states two or more) ...
Judicial rule of evidence under which no reduction in damages awarded by a court is allowed for bodily injury, sickness, illness, or accident merely because the plaintiff has other ...
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