This is a the second article of two taking you back to the basics of affiliation. The first, giving you a general overview of affiliation, can be found here. This follow-on article goes through the different bases for affiliation, as set forth in SBA’s affiliation regulations. Keep in mind though, this is still affiliation “basics” and does not go into a detailed analysis of each type of affiliation, as that would be a novel–not a blog.
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Five Things You Should Know: Common Misconceptions About SBA’s Affiliation Rules
Avoiding affiliation with other companies can be critical to qualifying as a small business under the SBA’s rules for government contractors. But not all SBA affiliation rules are intuitive, and in my career as a government contracts attorney I have seen the same misconceptions about the affiliation rules come up time and and time again.
So without further ado, here are five common misconceptions about the SBA’s affiliation rules.
Continue readingNonprofits Not Exempt From Affiliation Rules, Says SBA OHA
A recent SBA Office of Hearings and Appeals decision confirms that there is no exception for nonprofit organizations when it comes to affiliation issues.
In the case, SBA OHA found affiliation between a self-certified small business and a nonprofit organization based on close family members controlling both the business concern and the nonprofit. Adding in the receipts from the affiliated nonprofit made the business in question ineligible for small business status.
Joint Venture Affiliation Exception Isn’t Unlimited, OHA Says
To encourage joint venturing, the SBA’s size regulations provide a limited exception from affiliation for certain joint venturers: a joint venture qualifies for award of a set-aside contract so long as each venturer, individually, is below the size standard associated with the contract (or one venturer is below the size standard and the other is an SBA-approved mentor, and they have a compliant joint venture agreement). In other words, the SBA ordinarily won’t “affiliate” the joint venturers—that is, add their sizes together—if the joint venture meets the affiliation exception.
Because of this special treatment, it can be easy for the venturers to assume that they are completely exempt from any kind of affiliation. But as the SBA Office of Hearings and Appeals recently confirmed, however, the exception isn’t nearly so broad.
SBA Affiliation Rules: “Inter-Affiliate Transactions” Exception Is Narrow
Under the SBA’s affiliation rules, the so-called “inter-affiliate transactions” exception applies only where the companies in question would be eligible to file a consolidated tax return.
In a recent size appeal decision, the SBA Office of Hearings and Appeals held that the inter-affiliate transactions exception does not apply when affiliated companies are ineligible to file a consolidated tax return–a result that seems to authorize “double counting” of affiliated companies’ revenues in the context of SBA size determinations.
VA CVE Verification Does Not Provide Affiliation Shield, Says SBA OHA
Even if the VA Center for Verification and Evaluation has found that a service-disabled veteran “unconditionally” controls a SDVOSB, the SBA may nonetheless determine that other individuals or entities also control the company within the meaning of the SBA’s affiliation rules.
As demonstrated by a recent decision of the SBA’s Office of Hearings and Appeals, VA CVE verification does not shield a SDVOSB from an adverse SBA affiliation determination, even if that determination is based on a finding that non-veterans control the company.
SBA Affiliation Rules: Directors’ Control “Illusory,” Says SBA OHA
A director does not “control” a company under the SBA affiliation rules when that director can be removed at any time by the majority shareholder, according to a recent size appeal decision of the SBA Office of Hearings and Appeals.
In Size Appeal of Environmental Quality Management, Inc., SBA No. SIZ-5429 (2012), SBA OHA arrived at the commonsense conclusion that when a majority shareholder has unfettered discretion to fire a company’s directors, the majority shareholder–not the directors–control the company for purposes of the SBA affiliation rules.