California Insurance License Exam Practice Test Practice Question
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?
Correct Answer: B
Rationale: A buy-sell agreement is a legal contract that outlines how a deceased shareholder's shares will be handled, ensuring a smooth transition of ownership and financial stability for the corporation and the heirs.
Option A, a split-dollar plan, involves sharing life insurance costs and benefits, not stock ownership. Option C, a key person agreement, protects a business from the loss of a vital employee and does not pertain to shareholder stock transfers. Option D, an executive bonus plan, provides additional compensation to executives, unrelated to the transfer of shares. Thus, option B is the most appropriate choice for this scenario.
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