Press Releases

WASHINGTON, D.C. - Yesterday, Rep. French Hill (R-AR) introduced legislation, the S Corporation Additional Participation Act or S-CAP Act, which would increase the maximum threshold for the number of shareholders an S Corporation can offer from 100 to 250. Rep. Mike Carey (R-OH) joined Rep. Hill in introducing the bill in the House, and Sen. John Boozman (R-AR) introduced companion legislation in the Senate.

Rep. Hill said, “As a former community banker, I have a deep appreciation for the importance of S Corporations. They are an invaluable tool that helps workers and small businesses alike. That is why I am pleased to introduce the S-CAP Act, which will expand access to the benefits of S Corps.

“By increasing equity participation for employees in private companies, S Corps have given more and more families the opportunity to achieve the American Dream. They improve employee retention, motivation, and productivity, and they increase the ability for companies to access capital through diverse sources. S Corps also empower Americans to climb the economic ladder and build generational wealth. This bill will build on the success of S Corps by increasing the number of shareholders they can have. It is a simple change that will have a dramatic positive impact on thousands, if not millions, of hardworking Americans.”

Sen. Boozman said, “Congress has a duty to shape the tax code with pro-growth policies that spur job creation and capital investment. S Corps are an important element in that framework that also help empower employees with expanded economic opportunity through the enterprise they know and trust most. Congress has adjusted S Corps shareholder caps previously, and our bill is another simple but important tax code reform that will benefit millions of small businesses and the hardworking Americans who drive their success.”

Rep. Carey said, “S corporations are an economic cornerstone of towns across America. I am proud to partner with my friend Rep. French Hill to support this common-sense legislation, the S-CAP Act, that would raise the S corporation shareholder cap from 100 to 250. This would promote small and mid-sized businesses, allowing them to attract more investments, and ultimately create more jobs for hard-working Americans.”

Further Background:

In the United States, S Corporations (S Corps) are the most popular corporate structure. The IRS estimates that there are more than 5 million S Corps throughout the country. Congress created the S Corp structure through subchapter S of the tax code in 1958 to help shield family-owned businesses from the double taxation treatment imposed on C Corporation (“C Corp”).

When the S Corp structure was established, Congress limited the number of shareholders to 10. Given the pass-through tax treatment, shareholder limitations were designed to create parity between S Corps and C Corps. When S Corps were originally introduced, the 10-shareholder cap made sense for small, family-owned businesses.

Over time, Congress has recognized the power of S Corps to create jobs, increase wealth, and grow the economy. They also realized that the cap on the number of permitted shareholders hinders the potential of S Corps and have voted to increase the cap multiple times. Most recently, the shareholder cap was raised to 100 through the American Jobs Creation Act of 2004. This expansion allowed for greater investment opportunities, but S Corps are still limited in their ability to attract capital, which restricts their ability to foster economic growth and their contribution to broader economic development.

In Arkansas’s Second District, 93,440 people (29.2% of all private sector workers) are employed at S Corporations. There are 318, 525 S Corp employees across the entire state (28.1%), and 38,533,460 nationwide (27.4%).

Other Support:

“The Subchapter S Bank Association strongly supports Chairman Hill’s legislation proposing to increase the number of shareholders eligible to hold S Corp stock. One-third of community banks in the US maintain an S election, and enactment of this legislation will be critical to meet and expand community bank capital access – allowing America’s 1500 S Corp banks to continue to serve their customers,” said Patrick J. Kennedy, Jr., President, Subchapter S Bank Association and Executive Chairman of TransPecos Banks, SSB.

“The S corporation shareholder cap is a relic from another age, particularly as it applies to employee owners. The Hill legislation would ensure that S corporations who offer ownership opportunities to their employees are not penalized by this arbitrary cap. We fully support this bill and look forward to working with Representative Hill on seeing it enacted,” said Brian Reardon, President, S Corporation Association.

“In 1949, my grandfather, Bob Nabholz embarked on a journey to build a house for himself and his wife, setting in motion the start of a construction legacy that has thrived for more than 75 years. Today we have 16 offices in seven states and employ more than 1,700 professionals with an expected 2025 revenue of over $1.8 billion. In 1976, Bob saw the value in offering ownership to key employees and invited the first group of team members to become shareholders. He felt it was important to give employees an opportunity to shape the future of our company and have a personal stake in our long-term success. That tradition continues to this day. Employee ownership has been a cornerstone of our company’s success for nearly 50 years. We are very proud of our employee owners and the impact they have on our company and the communities we live in. The proposed increase in the S Corp shareholder cap will give us the ability to offer many more well-deserving employees the opportunity to become owners of Nabholz Construction. We are grateful to Senator Boozman and Congressman Hill for sponsoring this legislation which will help reward and retain top talent, ensuring the long-term growth and success of our company. We respectfully encourage Congress to pass this legislation,” said Jake

Nabholz, Chief Executive Officer, Nabholz Construction Corporation.

This bill is also endorsed by the American Council of Engineering Companies.