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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.)
Control Requirements for Approved Firms
Once approved, SBA continuously monitors the firm to ensure that the firm is still controlled by disadvantaged individuals. Generally, any change must be submitted and approved by SBA before the firm can change control. A firm can be terminated from the program by not gaining SBA’s approval before any change in control.
Firms owned by an entity have different requirements and generally the entity must show control of the firm. Eligible entities include Certified Development Companies and companies owned by American Indians, Native Alaskans and Native Hawaiians. However, entity-owned firms can have more than one firm approved into the program. There are limits on owning more than one firm admitted into the 8(a) Business Development program where majority ownership is by an individual.
Contact an SBA local office or resource partner for free one-on-one assistance to get help on the process requirements to proving economic disadvantage.
Before starting the application process please consult these online resources: