U.S. Small Business Administration: The "SBA's 8(a) BD Program" Part 2

Now we will contenue the second part of The "SBA's 8(a) BD Program":

11. Must an individual who is not a member of a designated group show discrimination in education, employment, and business history in order to show negative impact on entry into or advancement in the business world because of the disadvantage?

SBA will consider any relevant evidence in assessing this element. In each case, however, SBA will consider the experiences of the individual, where applicable, in education, employment, and business history to determine whether the totality of the circumstances shows disadvantage in entering into or advancing in the business world. Evidence relating to all three should be addressed, if applicable. For each applicable circumstance the individual applicant should demonstrate how it has affected his/her entrance into and advancement in the business world. The failure to establish disadvantage in any one or these areas (i.e., education, employment, or business history) does not prevent an individual from meeting the negative impact requirement as long as the totality of the circumstances experienced by the individual demonstrates such disadvantage.

12. What does it mean to be economically disadvantaged?

Economically disadvantaged individuals are socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities.

13. What factors are considered when SBA evaluates the economic disadvantage of an individual?

The individual's net worth, after excluding the individual's equity in the firm and the equity in the primary residence, may not exceed $250,000. SBA will also consider the individual's average two-year income, fair market value of all assets, access to credit and capital, and the financial condition of the applicant firm in evaluating economic disadvantage.

14. When evaluating economic disadvantage, does SBA include assets that an individual claiming disadvantaged has recently transferred to another individual?

SBA will attribute to an individual claiming disadvantaged status any assets that the he/she has transferred to an immediate family member (or to a trust where an immediate family member is the beneficiary) for less than market value within two years prior to the firm's application for participation in the 8(a) program. A transfer of assets for "fair market value" based on verifiable independent documentation would be excluded. Also excluded are transfers for education, medical expenses, certain forms of essential support, and transfers that are consistent with the customary recognition of special occasions (e.g. birthdays, graduations, anniversaries, and retirements). The disadvantaged applicant must show proof of the reasons for these asset transfers.

15. What percentage of ownership in the applicant firm must be owned by socially and economically disadvantaged individuals?

SBA requires that at least 51% of the applicant firm is directly and unconditionally owned by socially and economically disadvantaged individuals.

16. Are there special ownership provisions for individuals who reside in a community property or state territory?

Yes. If only one spouse is claiming disadvantaged status, this spouse's ownership interest will be considered only to the extent it is vested by the community property laws. For this reason, a transfer or relinquishment of interest by the nondisadvantaged spouse may be necessary.

17. Is ownership by a trust allowed for 8(a) certification?

8(a) regulations require that ownership in the firm by one or more disadvantaged individual(s) be direct ownership. Generally, SBA does not consider ownership by a trust to be direct ownership. However, ownership by a trust, such as a living trust, may be considered the functional equivalent of direct ownership if the following conditions are met:

1. The trust is revocable;
2. The disadvantaged individual is the grantor of the trust;
3. The disadvantaged individual is a trustee of the trust; and,
4. The disadvantaged individual is the sole current beneficiary of the trust.

18. Can a disadvantaged individual or firm have ownership in more than one 8(a) Participant?

Yes. However, one or more disadvantaged individuals determined to be disadvantaged for purposes of qualifying one Participant, their immediate family members, and the Participant itself, may not hold in aggregate, more than 20% equity in any other single 8(a) firm.

19. Are there any 8(a) ownership restrictions placed on nondisadvantaged individuals or firms?

Yes. SBA places two general ownership restrictions on nondisadvantaged individuals and firms:

1. A nondisadvantaged individual, in aggregate with all immediate family members, or firm that is a general partner or stockholder with at least a 10% ownership interest in an 8(a) firm, may simultaneously hold up to 10% ownership interest in any number of 8(a) firms in the developmental stage of program participation and up to 20% interest in any number of 8(a) firms in the transitional stage of program participation.
2. A non-participant concern in the same or similar line of business may own up to 10% of an 8(a) firm in the developmental stage and up to 20% in an 8(a) firm in the transitional stage. Former 8(a) participants or a principal of a former participant (except those that have been terminated from the 8(a) program) may own up to 20% in an 8(a) firm in the developmental stage and up to 30% in an 8(a) firm in the transitional stage.

20. How does SBA view control of an applicant or 8(a) concern?

Control is not the same as ownership, although both control and ownership may reside in the same person. Control includes both strategic policy setting and the day-to-day management and administration of business operations by disadvantaged individuals.

21. Does SBA require the disadvantaged individual to have the technical expertise and hold the critical license in order to demonstrate that he or she controls and manages the applicant firm?

No. SBA requires only that the disadvantaged individual(s) controlling the firm have management experience to the extent and of the complexity necessary to run the firm. However, the disadvantaged individual must demonstrate that he or she has the ultimate managerial and supervisory control over those in the firm with the technical or licensing expertise. If the critical license is held by a nondisadvantaged individual who has an equity interest in the applicant firm, SBA may find that the nondisadvantaged individual controls the firm.

22. How does SBA determine disadvantaged control of a corporate Board of Directors?

There are six situations where SBA may determine disadvantaged individuals control a Board of Directors:

1. If a single disadvantaged individual owns 100% of all issued and outstanding voting stock of an applicant firm, regardless of the composition of the Board of Directors.
2. If a single disadvantaged individual owns at least 51% of issued and outstanding voting stock of the applicant firm, is a legally elected voting member of the Board of Directors, and no super majority voting requirements exist for shareholders to approve corporate actions.
3. If a single disadvantaged individual owns at least 51% of all issued and outstanding voting stock of the applicant firm, is a legally elected voting member of the Board of Directors, and owns at least the percentage of voting stock needed to overcome the super majority voting requirements that exist for shareholders to approve corporate actions.
4. If more than one disadvantaged individual owns at least 51% of all issued and outstanding voting stock of the applicant firm; are all legally elected voting members of the Board of Directors; no super majority voting requirements exist for shareholders to approve corporate actions; and the disadvantaged shareholders can demonstrate they have made enforceable arrangements to permit one of them to vote the stock of all as a block to nondisadvantaged shareholders' actions, without holding a shareholder meeting.
5. If more than one disadvantaged individual owns at least 51% of all issued and outstanding voting stock of the applicant firm; are all legally elected voting members of the Board of Directors; in total all own at least the percentage of voting stock needed to overcome the super majority voting requirements which exist for shareholders to approve corporate actions; and can demonstrate that they have made enforceable arrangements to permit one of them to vote the stock of all as a block to nondisadvantaged shareholders' actions, without holding a shareholder meeting.
6. If the disadvantaged individual(s) can control the formation of a quorum for the purpose of holding a board meeting and have a majority vote at board meetings either through actual number of voting directors or through weighted voting, where permitted by state law.

to be contenue>>> The source is: http://app1.sba.gov/faqs/faqIndexAll.cfm?areaid=17