What’s New with QSBS?

QSBS has long been a valuable tool for founders and investors, allowing them to exclude the greater of $10 million or ten times their cost basis from capital gains tax when selling qualified stock of a domestic C corporation held for more than five years—provided certain conditions are met. The OBBBA enhances this framework by increasing the per-issuer limitation from $10 million to $15 million, indexed for inflation, for QSBS issued after July 4, 2025. 

Even more transformative is the introduction of partial exclusions starting in year three, enabling founders and investors to access the exclusion sooner than ever before. For QSBS issued after July 4, 2025, eligible gains can be excluded on the following scale: 

 This phased approach is particularly significant in today’s fast-paced market, where the ability to pivot and adapt can mean the difference between success and failure. Founders can now plan their exits with greater flexibility, confident in the knowledge that they have options that were previously unavailable. 

A Bigger Cap, a Bigger Opportunity

 Previously, only Domestic C corporations with gross assets under $50 million could issue QSBS. The OBBBA raises that threshold to $75 million, opening the door for more companies to benefit from these tax advantages. This development maybe vital for startups and small businesses that often struggle to attract investment in a competitive landscape. By allowing larger capital influxes while preserving tax benefits, the OBBBA enables founders to scale their businesses more effectively. 

The increased cap not only enhances tax benefits but also unlocks new strategies for capital raising, exit planning, and entity structuring. Companies that once exceeded the $50 million limit but now fall below the revised threshold can resume issuing QSBS until they again surpass the inflation-adjusted cap. This change presents a strategic opportunity for corporations to attract investors and employees, fostering growth. 

Staying Under the Cap: Smart Planning Matters

The OBBBA also includes several provisions that may help corporations reduce the tax basis of their assets, enabling them to remain below the $75 million inflation-adjusted gross asset limitation and continue issuing QSBS longer. For research-heavy businesses, one key change is the immediate expensing of domestic research and experimental costs under Section 174A. Starting in 2025, these expenses will be fully deductible upfront, reducing asset basis and keeping balance sheets leaner. Additionally, the reinstated 100% bonus depreciation will further help companies manage their asset levels and extend their eligibility to issue QSBS longer. 

Choosing the Right Structure: C Corp vs. Pass-Through

While the OBBBA significantly enhances the appeal of QSBS, it’s important to remember that these benefits apply only to stock issued by domestic C corporations. This means founders must carefully weigh the trade-offs between forming a C corporation and opting for a pass-through entity such as an LLC or S corporation. C corporations are subject to double taxation—once at the corporate level on profits, and again when those profits are distributed to shareholders as dividends. In contrast, pass-through entities typically face only a single layer of tax, which can be more efficient in certain scenarios. 

However, many startups don’t distribute profits in their early years, making the double taxation of C corporations less of a concern initially. In fact, the optimal QSBS outcome often involves retaining earnings taxed at the lower corporate rate and later excluding gains upon sale—provided the sale is structured as a stock transaction. This strategy requires thoughtful planning but can result in substantial tax savings for founders and investors. 

A Call to Action for Founders

The QSBS reforms found in the OBBBA are more than just tax tweaks—they’re a strategic invitation for founders to rethink how they grow and raise capital and plan exits. But these benefits won’t materialize automatically. Founders must proactively adapt to the new rules, assess their business structures, and plan with precision. For those who do, the rewards could be substantial. The increased cap, phased exclusions, and expanded eligibility create fertile ground for innovation and growth. In a challenging economic landscape, the OBBBA offers a rare tailwind—one that savvy entrepreneurs can harness to build stronger, more resilient businesses. 

This material has been distributed for informational purposes only. Bernstein does not provide tax, legal, or accounting advice. 

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.

Warner Music Group and AI music platform Udio have struck what they call “a landmark agreement” that resolves the companies’ copyright infringement litigation.

The companies have also entered into a licensing deal for a “next-generation” AI–powered music creation, listening, and discovery platform set to launch next year.

The news arrived just an hour after WMG announced a new partnership with Stability AI on Wednesday (November 19), which the companies say will “advance the use of responsible AI in music creation”.

According to a press release, the agreement with Udio spans WMG’s recorded music and music publishing businesses and “creates new revenue streams for artists and songwriters, while ensuring their work remains protected”.

The settlement and licensing deals come just over a year after the RIAA, on behalf of all three major record companies, sued Udio and rival AI platform Suno for “mass infringement” of copyright.

Universal Music Group also settled with Udio last month, in addition to signing a deal for a licensed AI music platform set to launch in 2026.

The two music companies’ agreements with Udio arrive as the majors, along with entities such as Denmark’s Koda and Germany’s GEMA, continue to pursue copyright claims against Suno.

Suno announced just today that it has raised $250 million at a $2.45 billion valuation. The platform is also generating $200 million in annual revenue.

Udio said today that its reimagined subscription service “will introduce a suite of creative experiences that enable users to make remixes, covers, and new songs using the voices of artists and compositions of songwriters who choose to participate, while ensuring artists and songwriters are credited and paid”.

Ahead of the launch, Udio also plans to roll out what it “expanded protections and other measures designed to safeguard the rights of artists and songwriters”.

“We’re unwaveringly committed to the protection of the rights of our artists and songwriters, and Udio has taken meaningful steps to ensure that the music on its service will be authorized and licensed.”

Robert Kyncl, WMG

Robert Kyncl, CEO, WMG said: “We’re unwaveringly committed to the protection of the rights of our artists and songwriters, and Udio has taken meaningful steps to ensure that the music on its service will be authorized and licensed.

“This collaboration aligns with our broader efforts to responsibly unlock AI’s potential – fueling new creative and commercial possibilities while continuing to deliver innovative experiences for fans.”

Andrew Sanchez, Co-Founder and CEO of Udio, added: “Collaborating with WMG marks a significant milestone in our mission to redefine how AI and the music industry evolve together.

“This partnership is a crucial step towards realizing a future in which technology amplifies creativity and unlocks new opportunities for artists and songwriters. Our new platform will enable experiences where fans can create alongside their favorite artists and make extraordinary music in an environment that offers artists control and connection. ]

“We’re absolutely thrilled to be working with WMG in creating this new future.”

According to today’s announcement, Udio’s new platform represents a “significant evolution” for the company, shifting its focus “to a platform built in collaboration with artists and songwriters”.

The announcement added that “to support a smooth transition, Udio will continue providing access to its current, closed-system” as it “transitions into serving fully-licensed applications in 2026”.

Music Business Worldwide

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