Qualified small business stock (QSBS)

CONCEPTLAST REVIEWED 2026-11SOURCED FROM 1 SESSION, NOV 2026PRIMARY SOURCE IRC §1202

Qualified small business stock is a US tax category under 26 U.S.C. § 1202. In outline, it is stock in a domestic C corporation that meets gross-asset and active-business tests, acquired at original issuance for money, property other than stock, or services, and held for the statutory period. Eligible non-corporate shareholders may exclude a portion or all of the gain on sale from federal income tax, subject to the statute’s caps and effective dates. State treatment varies; some states do not follow section 1202.

Why it matters

A November 2026 VEN session on US expansion named QSBS as one reason early US investors push for a Delaware flip: the framework is built around domestic C corporations, not foreign issuers.

From the room

The practitioner described early-stage US investors looking for QSBS tax advantages on investments into US companies, and noted those advantages are not available the same way for non-US companies. The statutory anchor is section 1202, not the session alone.

Where founders get it wrong

• Expecting QSBS on a non-US parent’s stock.
• Ignoring active-business and holding-period tests after a flip.
• Flipping for QSBS without checking home-country tax on the reorganization.
• Assuming a flip turns shares you already hold into QSBS. Shares received in exchange for stock generally do not qualify.

Go deeper

• The Delaware flip for non-US founders places QSBS next to Delaware-law familiarity and home-country tax.
• Statute: 26 U.S.C. § 1202.