In short
An S corporation may have only one class of stock, meaning all outstanding shares give identical rights to distributions and liquidation proceeds. Differences in voting rights are allowed.
Key takeaways
- Distributions not made in proportion to ownership can risk creating a second class of stock.
- Straight debt meeting safe harbor terms isn't treated as a second class.
- A second class of stock terminates the S election.
Where it's tested
REG: S Corporation Taxation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Which of the following would immediately terminate a corporation's S election?