Question

4 francis and andrea own 50% shares each of ns enterprises which has a total of 100 shares. the business is stable, prosperous and profitable. however, both shareholders are concerned that the death of one of them could disrupt the business. to address this risk, they consult with an insurance advisor and establish a key man owned structured no - a share redemption plan, funded by insurance owned by the company. they ask their agent for clarification to understand how this arrangement functions. which of the following statements about this arrangement is true? qw96wusvwwnocncvqwppzohyvibout09 a. if a shareholder dies, his insurance proceeds will be paid to the surviving shareholder. b. if a shareholder dies, the surviving shareholder will pay the other shareholders estate for his 100 shares with a promissory note. c. francis and andrea are responsible for paying their insurance premiums through the company. d. if either francis or andrea dies, their insurance proceeds will be paid to the company.

Explanation:

In a share redemption plan funded by company - owned insurance (entity - purchase buy - sell agreement), when a shareholder dies, the insurance proceeds are paid to the company. The company then uses these proceeds to redeem the deceased shareholder’s shares. Let's analyze each option:

• Option a: Insurance proceeds are not paid to the surviving shareholder in this arrangement.
• Option b: The surviving shareholder does not directly pay the estate with a promissory note; the company redeems the shares using insurance proceeds.
• Option c: The company, not the shareholders, is responsible for the insurance premiums as the insurance is owned by the company.
• Option d: This matches the mechanics of an entity - purchase buy - sell agreement where the company owns the insurance, and proceeds go to the company on a shareholder's death to fund share redemption.

Answer:

d. If either Francis or Andrea dies, their insurance proceeds will be paid to the company.