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
Percentage of a life insurance company's policies in force at the beginning of the year that are no longer in force at the end of the year. This ratio is critical because it indicates the ...
Traditional HMO made up of physicians who are salaried by the HMO. These physicians treat solely HMO members who are covered only if they use HMO physicians and hospitals. ...
Time during which an assessment life insurance company has the right to assess policyholders if losses are worse than anticipated in the premium charged. ...
Annual premium expressed on a proportionate basis such as monthly, quarterly, or semiannually. ...
Modest amounts of coverage sold on a debit basis. The face amount is usually less than $1000. ...
Independent insurance salesperson who represents particular insurers but may also function as a broker by searching the entire insurance market to place an applicant's coverage to maximize ...
Confirmation by an insurance company of the acts of its agent, regardless of whether or not these acts were committed within the limit of authority granted the agent by the company. By so ...
Coverage that guarantees that the executor or administrator of an estate will conduct his or her duties according to the provisions of the will and the legal requirements of the ...
Refusal by an insurance company to underwrite a risk. ...
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