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 were vacated in their entirety by the Fifth Circuit in National Association of Private Fund Managers v. SEC, 103 F.4th 1097 (5th Cir. 2024), which held that the rules exceeded the SEC's authority under sections 206(4) and 211(h) of the Investment Advisers Act of 1940. None of the rule survived judicial review. One year on, the operating posture for sponsors has settled along the contours of LP-driven market practice rather than rule-mandated practice.

For sponsors actively raising or operating funds, the Q2 2026 disposition is the pre-rule statutory status quo, paired with an SEC enforcement focus on the surviving fiduciary themes under the Investment Advisers Act. 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, continued to develop 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 In re Match Group, Inc. Derivative Litigation, 315 A.3d 446 (Del. Apr. 4, 2024) (extending MFW-cleansing review to all controlling-stockholder transactions involving non-ratable benefits) and the Delaware Supreme Court's December 2025 reversal in In re Tesla, Inc. Derivative Litigation (reinstating the Tesla compensation package previously rescinded by the Court of Chancery in Tornetta v. Musk, 310 A.3d 430 (Del. Ch. 2024), and substantially reducing the associated plaintiffs' fee award). 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 (as amended March 25, 2025) and its safe-harbor architecture (new § 144(a) for director-and-officer transactions and § 144(b) and (c) for controlling-stockholder transactions, with going-private transactions covered at (c), procedural rules at (d), and definitions at (e)), and whether to satisfy the requisite cleansing through disinterested-director or disinterested-stockholder approval, or 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 recent refreshes have included changes affecting the IRA, the ROFR/Co-Sale architecture, and the protective-provisions list. The current generation of NVCA forms continues the post-2018 dominance of the post-money SAFE in early-stage rounds and reflects market practice as it has settled, 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 FTC’s Withdrawal

The FTC's nationwide non-compete ban, finalized in April 2024, was set aside on a nationwide basis by the U.S. District Court for the Northern District of Texas in August 2024 in Ryan LLC v. FTC, No. 3:24-cv-00986 (N.D. Tex.), with a parallel preliminary injunction (limited in scope to the plaintiff) issued by the U.S. District Court for the Middle District of Florida in Properties of the Villages, Inc. v. FTC, No. 5:24-cv-316 (M.D. Fla. Aug. 14, 2024). The FTC's Eleventh Circuit appeal in Properties of the Villages was voluntarily dismissed in September 2025, and the Eleventh Circuit issued no merits ruling. The FTC initially appealed both rulings; on September 5, 2025, the Commission voted 3-1 to withdraw both appeals and accede to vacatur, and the appeals were dismissed shortly thereafter. The N.D. Tex. vacatur therefore stands as the operative ruling without a Fifth Circuit decision on the merits. 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.