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
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Tax, under federal and state laws, on transfer of property made without payment or other value in exchange. ...
One of four types of risks used by the society of actuaries (SA) to determine a life insurance company's overall risk profile when fluctuations in interest rates result in abnormal cash ...
Type of commercial insurance that provides coverage for the business under the following policy forms: Form A employee dishonesty involving money, securities, and other properties and may ...
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Attachment of decreasing term life insurance to an ordinary life policy to provide monthly income to a beneficiary if death occurs during a specified period. If the insured dies after the ...
Inquiry conducted by a committee of the legislature of the State of New York in 1905 that looked at abuses of life insurance companies operating in the state. This study led to stricter ...
Amount charged to an insured that reflects expectation of loss for a covered risk; and insurance company expenses and profit. ...
Wording in life insurance policies to determine the order of deaths when the insured and the beneficiary die in the same accident. For example, if the insured is deemed to have died first, ...
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