S Corporation Eligibility And Compliance Rules Practice Test

Riverbend Holdings, Inc. is an S Corporation with 2 shareholders. One shareholder proposes that the corporation issue a second class of nonvoting shares with identical distribution and liquidation rights solely to facilitate succession planning. Which requirement must be met for S Corporation eligibility?

Canyon Ridge Foods, Inc. is an S Corporation. It is considering issuing convertible debt that can be converted into shares with preferential distribution rights upon conversion. Management wants to ensure the financing does not create a second class of stock. What action should be taken to comply with S Corporation rules?