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
Same as term Deviated Rate: rates used by a property and casualty insurance company that are different from that suggested by a rating bureau. An insurance company may use deviated rates ...
Federal law, effective February 4, 1989, that requires company notification of employees prior to laying them off or closing a plant or an office. Workers covered under WARN are to include ...
Same as term Morbidity Table: umber of individuals exposed to the risk of illness, sickness, and disease at each age, and the actual number of individuals who incurred an illness, sickness, ...
Conducting of maritime suits involving ocean marine insurance policy claims before an admiralty court. ...
Health and medical insurance that excludes coverage for job-related injuries and illnesses. Most medical insurance policies do not provide benefits for job-related claims, which are covered ...
Layering of a bond portfolio where bonds are sold whose yield to maturity are low and bonds are bought whose yield to maturity are high in order that reserve requirements are met for future ...
Elimination of unnecessary financing costs and the redirection of those sums to activities that are more profitable. The concept is for the company to have a long-term view of its risk ...
Coverage for equipment normally carried from location to location by a physician or surgeon; written on an all risks basis to include supplies and scientific books used in medical practice. ...
Clause found in an annuity contract that enables the owner of that contract to withdraw his or her money without surrender penalties, if the annual interest rate is lowered below a certain ...
Have a question or comment?
We're here to help.