Capital Quarterly

The Post-OBBBA QSBS Landscape

Section 1202 of the Internal Revenue Code, which has long been the largest single tax benefit available to founders and early-stage investors, was meaningfully expanded by federal legislation enacted in 2025. The expansion preserves the core architecture (a non-corporate holder, original issuance from a domestic C-corporation, more than five years of holding, an active business, and the per-issuer-per-shareholder cap) while raising the gross-asset threshold and recalibrating the dollar cap on excluded gain.

For founders incorporating now, the practical takeaway is unchanged: form as a Delaware C-corporation; issue founder stock at par; file the 83(b) election within the 30-day statutory window under 26 U.S.C. § 83(b); document the corporate record so the active-business test under 26 U.S.C. § 1202(e) can be substantiated at exit; and watch the gross-asset cap under 26 U.S.C. § 1202(d) as the company grows. The expansion does not change the formation playbook; it expands the eventual benefit. For founders sitting on stock issued before the expansion, transitional rules apply, and specific facts dictate whether the new or old caps govern.

SEC Private-Fund Rules at One Year

The SEC's private-fund adviser rules adopted in 2023 ran through significant judicial review and partial vacatur in the Fifth Circuit, and one year on the operating posture for sponsors has settled. What remains: heightened expectations around side letters and preferential terms, fund-level expense allocation, and the trajectory of indirect-fee transparency. What did not survive judicial review: certain mandated disclosures and prohibitions that the court found exceeded the SEC's authority under the Investment Advisers Act of 1940.

For sponsors actively raising or operating funds, the Q2 2026 disposition is essentially the pre-rule status quo on the vacated provisions, paired with an SEC enforcement focus on the surviving fiduciary themes. Funds entering market continue to disclose preferential terms in side letters at high transparency levels. LPs continue to ask for it. The market practice that the rules attempted to mandate has, in effect, become the market practice anyway through LP demand.

Conflicted-Controller Transactions After the Latest Chancery Decisions

The Delaware Court of Chancery's body of case law on conflicted-controller transactions continued to develop in late 2025 and early 2026 along the trajectory established by Match Group, Tornetta, and the post-trial decisions in the Tesla compensation matter. The doctrinal core is unchanged: a transaction in which a controlling stockholder stands on both sides receives entire-fairness review unless the so-called MFW conditions are satisfied (an ab initio committee of disinterested, independent directors with full power and proper diligence, plus an informed, uncoerced majority-of-the-minority stockholder vote), in which case the standard reverts to business judgment.

Recent decisions have continued to scrutinize the "ab initio" requirement closely. A committee constituted only after negotiations have begun, or one whose mandate is narrower than the actual transaction structure, will not qualify the transaction for MFW cleansing. The Chancery has also reinforced that the "informed" prong of the stockholder vote requires comprehensive disclosure of all material facts, including the committee's process and any conflicts of committee members.

For studio-incubated and sponsor-led ventures, the implication is structural. Where the studio or sponsor sits on both sides of a transaction (a services agreement, a fund-to-fund preferred bridge, an inter-company license), the planning question is whether to invoke 8 Del. C. § 144's safe harbor by disinterested-director or disinterested-stockholder approval, and whether to follow the MFW framework in transactions large enough to warrant it.

The NVCA Model Document Refresh

The National Venture Capital Association issues periodic refreshes to its model financing documents (Certificate of Incorporation, Stock Purchase Agreement, Investor Rights Agreement, Right of First Refusal and Co-Sale Agreement, Voting Agreement, and Management Rights Letter), and the Q1 2026 refresh introduced changes to the IRA's information rights provisions, the ROFR/Co-Sale exception architecture, and the protective-provisions list. The refresh continues the post-2020 trend of standardization on the post-money SAFE world's expectations, and it tightens the language around side-letter coordination where multiple investors hold preferred-stock-class consent rights.

For founders entering a Series A on NVCA documents in Q2/Q3 2026, the refresh affects how the major-investor threshold for information rights and pro-rata rights operates, and how the protective-provisions list is sized and scoped. None of the changes are radical; all of them are worth reviewing line-by-line against any prior-vintage form your prospective lead investor's counsel proposes to use.

The FTC Non-Compete Rule After the Fifth Circuit

The FTC's nationwide non-compete ban, finalized in April 2024, was set aside by the U.S. District Court for the Northern District of Texas in August 2024 and the holding was affirmed by the Fifth Circuit in 2025. The rule never took effect, and the federal landscape on non-competes for non-executive employees is back to what it was in 2023: a state-by-state mosaic, with California, Minnesota, Oklahoma, and North Dakota effectively prohibiting non-competes; New York imposing significant constraints under common-law reasonableness review (the legislature has repeatedly considered but not enacted a categorical ban); and most other states applying reasonableness tests.

For venture-backed and sponsor-backed companies, the practical posture continues to be: review your PIIA non-compete clauses against each state's enforceability rules where you have employees; calibrate the duration and geographic scope to the state's reasonableness test; and assume that aggressive non-competes (12+ months, multi-state, multi-industry) face significant enforcement risk in any state that has not categorically banned them. Confidentiality and IP-assignment provisions remain straightforwardly enforceable in nearly all jurisdictions and continue to do most of the protective work the non-compete was historically asked to do.