10.3.2.2 Close Corporation Cross-Purchase Plans
You already learned that a close corporation is owned by its stockholders and is not considered a partnership. Their respective cross-purchase plans differ also. In a partnership, shares are equal; in the close corporation, each stockholder carries an individual policy on the other stockholders according to their owned shares (portions).
In the following scenario, there are three stockholders. If one dies, the survivors receive equal portions of the deceased's shares.
Ralph purchases life insurance policies on Ron and Ray at their respective share values.
Ron purchases life insurance policies on Ralph and Ray at their respective share values.
Ray purchases life insurance policies on Ralph and Ron at their respective share values.
Six life insurance policies purchased total.
