Straight Debt

Straight Debt means:
debt that.

1. is evidenced by a written unconditional promise to pay a fixed amount on demand, or on a specific date, 2. provides for an interest rate and an interest payment date that are not contingent on the borrower's profits, discretion, or similar factors, or on the payment of dividends, 3. is not convertible into stock or any other equity interest, and.

4. is owed to a creditor who is eligible to own stock in an S corporation, such as an individual, estate, or qualified Subchapter S trust.

The straight debt requirements meet the safe harbor rule to prevent the U.S. Internal Revenue Service from reclassifying debt as a second class of stock, thereby violating one of the requirements for an electing corporation to be treated as an S corporation. Former IRC (check if this IRC provision is current here) §1361(c)(5)(A).

See Dividend in the American Legal Encyclopedia and Dividend in the World Legal Encyclopedia.