Tag Archives: unconditional control

SDVOSB Eligibility Not Affected By Ownership Transfer Restriction, Says Federal Court

Posted on by

As many service-disabled veteran-owned small businesses have discovered, the VA CVE believes that so-called “right of first refusal” provisions prevent veterans from freely selling or transferring their ownership interests.  Because such transfer restrictions are commonplace in standard corporate bylaws and operating agreements, countless SDVOSBs have been denied VA CVE verification for including them.

Those days may be over.

In a decision released to the public late last week, the U.S. Court of Federal Claims held that the VA OSDBU had erred by sustaining a SDVOSB eligibility protest on the basis of the company’s right of first refusal provision.  That decision, Miles Construction, LLC v. United States, No. 12-597C (2013), also includes other important rulings on the scope of “unconditional” ownership and the VA OSDBU’s evaluation of SDVOSB eligibility protests.

Continue reading →

SDVOSBs: Beware of Loans From Minority Owners

Posted on by

When I was in fifth grade, I had to go door-to-door selling candy bars to raise money for a class field trip.  I worked up the courage to peddle assorted chocolates to most of the neighbors, but avoided houses with those ominous “BEWARE OF DOG” signs.  I was selling snacks; I didn’t want to become a snack myself for some large canine.

For service-disabled veteran-owned small business owners, the SBA Office of Hearings and Appeals has recently hung up its own ominous sign: “BEWARE OF LOANS,” at least when they come from non-service-disabled minority owners.  In SDVOSB Appeal of Rush-Link One Joint Venture, SBA No. VET-228 (2012), the SBA Office of Hearings and Appeals found that loan arrangements between a service-disabled veteran and the company’s minority owners abrogated the service-disabled veteran owner’s control over the company.

Continue reading →

SBA Affiliation Rules and Unanimity Provisions: Some SBA OHA Guidance

Posted on by

A company’s minority owners often insist that certain  actions be approved unanimously or on a supermajority basis, giving the minority owner the ability to control (or at least veto) those actions.

But small government contractors must tread very carefully when it comes to unanimity or supermajority provisions in their bylaws, operating agreements, or other governing documents.  Although the SBA permits unanimity or supermajority provisions regarding certain “extraordinary” corporate actions, other unanimity or supermajority provisions may result in a finding that the minority owner exercises undue negative control over the company, leading to affiliation problems with other companies controlled by that minority owner.

The decision of the SBA’s Office of Hearings and Appeals in Size Appeal of DHS Systems, Inc., SBA No. SIZ-5211 (2011) offers some guidance as to which provisions pass muster under the SBA affiliation rules, and which do not.

Continue reading →

Quorum Provision Defeats SDVOSB Status

Posted on by

If someone asked me to play a word association game with the phrase “quorum provision,” one of my first responses might be “boring.”  After all, who really cares about some arcane paragraph tucked away in a company’s governing documents, describing how many people must attend company meetings?

Well, SDVOSBs should care.  If your small business is pursuing service-disabled veteran-owned small business set-aside opportunities, you better make sure your governing documents are airtight.  As demonstrated in one recent SBA Office of Hearings and Appeals decision, even something as mundane and boring as a quorum provision can defeat SDVOSB status, if the provision does not allow service-disabled veterans to unconditionally control the company.

Continue reading →