All firms approved, and remaining in, SBA’s 8(a) Business Development program must be owned by the disadvantaged individuals. The disadvantaged individuals must show at least 51 percent ownership in the firm. Control and ownership are not the same and SBA evaluates each differently.
To determine ownership, 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:
- Owns at least 51 percent or more of the firm
- Possesses direct ownership, meaning the firm is neither owned through another firm nor trust (with the exception of certain living trusts)
- Has unconditional ownership, without restrictions or conditions
- Is entitled to receive distributions commensurate with ownership percentages – both annually and when stock is sold or firm is dissolved.
- The SBA regulations also have specific restrictions on ownership by immediate family members, non-disadvantaged individuals, and by other firms
Consult the SBA regulations for guidance on whether or not your firm’s ownership structure can meet the SBA’s regulations for admittance into the 8(a) Business Development program.
Here are just some of the documents SBA looks at to determine whether the firm is unconditionally and directly owned by disadvantaged individuals:
- Articles, bylaws, operating agreements and partnership agreements
- Stock certificates, stock options, outstanding shares, unexercised and exercised stock options, and types and class of voting stock in a corporation
- Types and classes of member interest in a limited liability company (LLC)
- Types and classes of partners in a partnership
- Prior owners of the firm and future proposed changes
- Ownership in other businesses by the disadvantaged individuals, by non-disadvantaged owners, and immediate family members of both
- Ownership of the firm by other businesses or a trust
- Ownership changes (to or from immediate family members, a spouse, another firm, other individuals, etc.)
Consult the SBA regulations to learn more about ownership requirements and see the checklist for required supporting documents.
Ownership Requirements for Approved Firms
Once approved, SBA continuously monitors the firm to ensure that the firm is still 51 percent or more owned by disadvantaged individuals. Generally, any change must be submitted and approved by SBA before the firm can change its ownership or business structure. A firm can be terminated from the program by not gaining SBA’s approval before any change in ownership or business structure.
Firms owned by an entity have different requirements and generally the entity must show majority ownership by the entity. Eligible entities include Certified Development Companies and companies owned by American Indians, Native Alaskans and Native Hawaiians.
Contact an SBA local office or resource partner for free one-on-one assistance to understand the process requirements to proving social disadvantage.
Before starting the application process please consult these online resources: