S-Corps Get More Breathing Room: Shareholder Limit Set to Jump from 100 to 250

A proposed piece of legislation, the S-Corporation Additional Participation Act of 2025 (or S-CAP Act), aims to significantly increase the number of shareholders a business can have while maintaining its S corporation status. Specifically, it amends section 1361(b)(1)(A) of the Internal Revenue Code to raise the maximum shareholder count from the current 100 up to 250. This change is slated to take effect for any tax year beginning after December 31, 2025.

So, what does this mean in practice? S corporations are a popular structure for small and medium-sized businesses because profits and losses are passed through directly to the owners' personal income without being taxed at the corporate level first. The current 100-shareholder limit can sometimes be a barrier for growing companies that want to bring in more investors, offer stock options to a wider pool of employees, or keep a larger family business within the S corp framework. By raising the cap to 250, this bill essentially gives these businesses more flexibility. It could make it easier to raise capital or expand ownership without forcing a company to switch to a C corporation structure (which involves corporate taxes) simply because it crossed the old shareholder threshold.