“Control Eligibility” As It Relates To Business Development Programs

By Terry Stroud, SBTDC/PTAC Counselor at Fayetteville State University

As one reviews the eligibility requirements for VOSB/SDVOSB, WOSB, SDB, HUBZone, and the 8(a) Program, Control Eligibility is a universal requirement for each certification. It is often misunderstood and a prime reason for frustration as companies navigate the application process for the various certifications.

In this article, we will review the items that are examined to determine control eligibility and resources that will assist you in getting and keeping your company in compliance with the requirements of Control Eligibility.

Directly from the SBA’s website for the Control Eligibility for the 8(a) program, https://www.sba.gov/content/control-eligibility, they communicate the following:

Control Eligibility

All firms approved, and remaining in, SBA’s 8(a) Business Development program must be controlled by the disadvantaged majority owner. Control and ownership are not the same and SBA evaluates it differently. To determine control, SBA looks at multiple factors from several different supporting documents the firm provides in the application package.

To be approved and remain in the 8(a) Business Development program, the firm must show that:

One or more socially and economically disadvantaged individuals:

  • Serves as the highest officer
  • Controls the board
  • Makes long-term decisions
  • Runs the firm’s day-to-day business operations
  • Receives the highest compensation from the firm
  • Possesses the appropriate amount and type of management experience needed to run the firm
  • Must possess the needed technical experience or critical licenses the firm needs or show ultimate managerial and supervisory authority over those who do
  • Work full-time at the applicant firm

Additionally, the firm must show unconditional control by disadvantaged individuals. Otherwise, SBA may find that the firm is controlled by non-disadvantaged individuals; or controlled by another business; or even controlled by a large firm. In either instance, the firm will be declined or removed from the program. SBA refers to this as “negative control.”

When examining control, SBA looks at the following:

  • Income and compensation to all principals
  • Compensation and distributions (including wages, dividends, interest, etc.) from the firm
  • Terms, conditions, and restrictions of financial agreements (loans, bonding, contracts, buy-sell agreements, bank signature cards, etc.)
  • Prior, current, and proposed business relationships such as teaming arrangements, joint ventures and loans
  • Board/member voting and composition (e.g. weighted voting, super majority requirements, quorum requirements, executive committees, election of officers, types of officers, authority of officers)
  • Terms in operating agreements, bylaws, and partnership agreements
  • Ownership changes (to or from immediate family members, a spouse, an entity, other individuals, etc.)

In addition to reviewing the information provided at the SBA website, also take a look at  the VA’s website pertaining to control.

A common theme defining control is present. For any given document that you must prepare and submit for a certification, the document’s wording and content must adhere to the principles of control we are given by the SBA listed earlier in this piece. Regarding “any” agreement your company has with another entity, the wording of the agreement must adhere to the principles of control. All of the documents must be deemed valid when reviewed. For example, if you have a handwritten agreement between your company and a friend providing you free office space, the document will need to read that way, specifying that there are no strings attached. Additionally, the document would need to be notarized, thus making it a valid and legal document that adheres to the control principles.

So, how do you position your company in such a way that it meets the Control Eligibility requirements? Beyond reading and understanding the requirements, it generally requires simple changes to the wording, of the required documents, for the certification you are seeking. A common set of documents that must be brought into compliance with the control issues, are the set of documents pertaining to the formation of the company. Very often, what I refer to as “cookie cutter” templates are used when your corporation was formed. At the time, the goal was to get the company formed, and little thought was given to adherence to control requirements. Therefore, a company’s corporate documents often require simple wording changes. In general terms, every document, policy, management structure, and agreement that exists for the company, must show that you make the final decisions for the company, without restrictions and influence of any kind. Sounds simple, but the devil is in the details, as usual.

Your local NC PTAC Counselor is well versed in assisting you with preparing your application packages for the various certifications. Your NC PTAC counselors are also Certified VA Verification Assistance counselors, with our contact info listed at the VA website: http://www.va.gov/osdbu/verification/assistance/counselors.asp

 

Once we have the core set of documents demonstrating control for your company in place, it will significantly reduce the complexity of the process for applying for other certifications. The trend of changes to self-certifications appears to be moving all of them toward an official certification process. Please contact your local PTAC counselor today, and get the assistance you need to accomplish your government contracting goals for your company. Navigating the application process for the various certifications will still take time to accomplish, but it can be done with minimal frustration, as you go through the process with PTAC assistance. For more information on assistance available, please visit our website at http://www.sbtdc.org/programs/ptac/.

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