Ordinarily, a company isn’t affiliated with the affiliates of its affiliates.
That sentence may sound a little silly, but it encapsulates an important principle about the breadth of the SBA’s affiliation rules. As demonstrated in a recent SBA Office of Hearings and Appeals decision, the SBA doesn’t apply its rules to create “chain affiliation.”
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.
Under the SBA’s economic dependence affiliation rule, two companies can be deemed affiliated when one company is responsible for a large portion of the other company’s revenues over time. But must both companies count one another as affiliates—or does the rule only apply when the recipient’s size is challenged?
A recent SBA Office of Hearings and Appeals case answers these questions: when a company is economically dependent upon another company, it is affiliated with the company on which it depends, but the opposite is not true. In other words, economic dependence affiliation is a one-way street.
A “similarly situated entity” cannot be an ostensible subcontractor under the SBA’s affiliation rules.
In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that changes made to the SBA’s size regulations in 2016 exempt similarly situated entities from ostensible subcontractor affiliation.
Editor’s Note: You can find our updated post on Affiliation here.
Affiliation might be one of the scariest words to small business government contractors. But why?
Here are five things you should know about affiliation:
One common way that contractors attempt to avoid affiliation is by limiting a particular individual to a minority ownership interest (often 49%).
But as a recent SBA Office of Hearings and Appeals case demonstrates, when a company’s owners are spouses (or other close family members), the SBA may disregard the legal ownership split, and treat the family members as one person for purposes of the affiliation rules.
An Alaska Native Corporation subsidiary was not affiliated with its parent company and two sister companies under the ostensible subcontractor affiliation rule, even though the company in question would rely on the parent and sister companies for managerial personnel, financial assistance and bonding.
A recent decision of the SBA Office of Hearings and Appeals highlights the breadth of the exemption from affiliation enjoyed by ANC companies.