S-CAP Act Proposes Raising S Corp Shareholder Limit from 100 to 250, Effective 2026

The S-Corporation Additional Participation Act of 2025, or S-CAP Act, proposes a straightforward change to business structures. It aims to amend the Internal Revenue Code (specifically section 1361(b)(1)(A)) to increase the maximum number of shareholders allowed in an S corporation from the current limit of 100 up to 250. If enacted, this adjustment would apply to tax years beginning after December 31, 2025.

Opening the Door for More Investors

So, what does this mean in practical terms? This bill directly modifies a key rule defining S corporations by more than doubling the shareholder cap. Think about a successful, growing family-owned manufacturing business or a promising software startup structured as an S corp. Right now, they might hit that 100-shareholder ceiling, which could restrict their ability to bring in fresh capital from new investors or offer stock options to a wider group of employees. This change could give such businesses significantly more breathing room to raise funds or expand ownership without facing the pressure to convert to a different, often more complex, corporate structure like a C corporation. It essentially widens the pathway for investment in these specific types of companies starting in 2026.