In order to access the tremendous opportunities associated with the SBA’s small business development programs (like the Women-Owned Small Business Program and Service-Disabled Veteran-Owned Small Business Program), a common requirement is that you own and control your small business.  While this seems like self-evident question – “Of course I own and control my own business!” – it can be trickier than it seems.

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The hallmark of SBA ownership is owning at least 51% of the business.  However, beyond a mere majority ownership position, the SBA also requires that you maintain “unconditional ownership, without restrictions or conditions.”  Often times, generic corporate formation documents will include provisions placing seemingly insignificant restrictions on business ownership – particularly when there are other investors or shareholders involved.  Reviewing your articles, bylaws, operating agreements, and partnership agreements is a good place to start if you have questions about SBA ownership.

The same is true when it comes to the SBA’s take on control.  In order to control your business to the SBA’s satisfaction, you must show that you are truly the person in charge.  The SBA evaluates a number of criteria when deciding the issue of control, including whether the socially and economically disadvantaged individual that owns the company also:

·         Serves as the company’s highest officer

·         Controls the board

·         Makes long-term decisions for the company

·         Runs the company’s day-to-day business operations

·         Receives the highest compensation among employees

·         Possesses the appropriate amount and type of management experience

·         Possesses the necessary technical experience or exercises authority over those who do

·         Works full-time at the company

The question of ownership and control over a veteran-owned business recently put a $134 million State Department aviation support contract in jeopardy.  Precise Systems Inc. was the awardee for the SDVOSB set-aside contract.  But – after an SBA protest – Precise was deemed ineligible based on concerns over its Employee Stock Ownership Plan.

In short, the SBA found that the Plan did not comply with specific SBA ownership regulations governing the structure of stock ownership for SDVOSBs.  However, that decision was later overturned at the Court of Federal Claims, which found that the SBA Office of Hearings and Appeals did not properly support its interpretation of Precise’s corporate structure.

Small business owners seeking to participate in SBA business development programs should conduct periodic audits to make sure that they continue to meet the SBA’s ownership and control requirements.  All it takes is one ill-timed SBA protest to make yourself question whether you really own your business.