Straight debt definition
/What is Straight Debt?
Straight debt is a written unconditional promise to pay a fixed amount, either on demand or by a specified date. It is not convertible into the equity of the issuer.
Straight Debt Issues in an S Corporation
The concept of straight debt is a particular concern in an S corporation, where any debt that is not straight debt can be considered a second class of stock. When this is the case, the firm’s S corporation election can be rendered invalid.
Example of Straight Debt
As an example of straight debt, the typical bond can be characterized as straight debt, because it cannot be converted into the stock of the issuer. Conversely, convertible debt cannot be characterized as straight debt, since it can be converted into the stock of the issuer.