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
Tables used to determine the present value of a sum in the future by taking into consideration the assumed interest rate and time period involved. ...
Coverage under which initial premiums are less than normal for the first few years, then gradually increase for the next several years until they become level for the duration of the policy. ...
Act in which volunteers of nonprofit organizations and government entities do not incur liability if they are acting within the scope of their volunteer activities, their actions do not ...
Coverage against foreign country expropriation underwritten by the overseas private investment corporation (OPIC) for U.S.-owned companies investing in given developing countries. ...
Excuses raised by a defendant in a negligent suit (unintentional tort). There are three basic defenses to unintentional torts or negligence. ASSUMPTION OF RISK an individual (plaintiff), by ...
12-month period from the date of issue of a policy as stated in its declarations section. ...
Quality of investments of insurance companies. State insurance regulators establish rules for company investments. Authorized investments vary, depending on whether a company is a life ...
Amount of required capital that the insurance company must maintain based on the inherent risks in the insurer's operations. These risks include asset depreciation risk, credit receivables ...
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 ...
Have a question or comment?
We're here to help.