Startups and the One Big Beautiful Bill Act: Rethinking C Corp vs. Pass-Through

This article originally appeared in the May 2026 issue of The Tax Adviser.

Every startup begins with a handful of questions, and one of the most consequential is deceptively simple: what entity should we choose? That decision shapes how capital is raised, how founder and investor economics play out, how to design employee equity, and what the tax bill looks like upon exit. 

For years, venture backed companies defaulted to C corporations to unlock qualified small business stock (QSBS) under Sec. 1202, while bootstrapped or profitable businesses leaned on pass throughs to take advantage of the Sec. 199A qualified business income deduction and manage self employment tax, all while maintaining flexibility with exit strategies. The One Big Beautiful Bill Act (OBBBA) has reset the table, as key individual rate cuts under TCJA are permanent, Sec. 199A is permanent, QSBS is expanded, and the transfer tax landscape is more generous. The result is a new calculus for entity choice, equity design, and exit timing.

BDO’s Peter Diakovasilis and Ryan Steinberg provide details in the full article in The Tax Adviser.