The owner of a 1/120th interest was presumed to control a company under the SBA’s affiliation rules.
You read that right. In a recent size appeal decision, the SBA Office of Hearings and Appeals held that where 120 owners each held one share of stock in a company, all 120 were presumed to control the company for size purposes.
An owner of a mere 4.16% minority interest nonetheless “controlled” a company within the meaning of the SBA’s affiliation rules because the company’s ownership was split among approximately 20 companies, each with an equal ownership interest.
In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that, where a company has no 50% or greater owner, a minority owner may be presumed to control the company–even where that ownership is as little as 4.16%.
A minority owner with a mere 21.2% stake in a government contractor controlled that contractor for SBA size and affiliation purposes, according to a recent SBA Office of Hearings and Appeals decision.
SBA OHA’s decision in Size Appeal of Civitas Group, LLC, SBA No. SIZ-5424 (2012) is an important reminder that a contractor’s single largest minority shareholder may be deemed to control the company under the SBA size and affiliation rules–even if the contractor’s governing documents do not grant that shareholder actual legal control.
Does a person who owns a minority share of a company “control” the company under the SBA affiliation rules? Yes, if the company has no majority owner and the minority share owned by the individual in question is the largest, or is similar in size to, the largest other minority shares.
Get all that? An example may help. The decision of the SBA Office of Hearings and Appeals in Size Appeal of Advent Environmental, Inc., SBA No. SIZ-5325 (2012), demonstrates how this rule can be a trap for the unwary.