27. A corporation agrees to purchase a deceased shareholder's stock at a set price and the shareholder's heirs agree to sell it to the corporation. What type of agreement is this?
Answer: B
A buy-sell agreement.
A buy-sell agreement is a legally binding contract that outlines the terms under which a corporation agrees to purchase a deceased shareholder's stock, ensuring that the heirs are obligated to sell it at a predetermined price.
A) A split-dollar plan.
A split-dollar plan is a life insurance arrangement where the costs and benefits are shared between an employer and an employee. This option does not pertain to the purchase of a deceased shareholder's stock and is therefore not relevant to the question.
B) A buy-sell agreement.
This option is correct as a buy-sell agreement specifically addresses the transfer of ownership of a deceased shareholder's stock, allowing the corporation to buy the shares at a set price, while the heirs agree to sell. It is designed to provide clarity and security in ownership transitions.
C) A key person agreement.
A key person agreement is designed to protect a business from the loss of a critical employee by providing funds to cover the potential financial impact. This type of agreement does not involve the transfer of stock from a deceased shareholder and is not applicable in this context.
D) An executive bonus plan.
An executive bonus plan is a compensation strategy that provides bonuses to executives, often in the form of life insurance or retirement benefits. This does not relate to the sale of a deceased shareholder's stock and is therefore incorrect.
Conclusion
The buy-sell agreement is the appropriate term for the situation described, as it directly addresses the sale of a deceased shareholder's stock to the corporation. All other options relate to different aspects of corporate finance or insurance and do not apply to the transfer of ownership in this context.