Back in the ’80s, I spent many a weekday afternoon watching The Transformers (the cheesy original cartoons, not the abysmal movies that followed much more recently). The tagline of the show, which was about a bunch of robots that can transform into vehicles, was “more than meets the eye.”
“More than meets the eye” is also a good way to think about the requirements for the still relatively young women-owned small business program. Google the phrase “women-owned small business program requirements” and you’ll come up with any number of articles stating that a viable women-owned small business must be “at least 51% unconditionally owned and controlled” by women.
While this is certainly true, these articles rarely explain exactly what the SBA has in mind when it comes to “unconditional” ownership and control. Under the WOSB regulations, the truth, especially on the “control” front, may surprise you.
For instance, consider the following scenario. A woman—we’ll call her Emily—owns 65% of a small business, Emily’s Chili, LLC, which provides spicy meals to government workers. Emily is a U.S. citizen, and serves as the company’s President, its highest officer. Emily runs the company on a day-to-day basis. Bob, the company’s 35% owner, is the Vice President. Like most LLCs, Emily’s Chili has an operating agreement. The operating agreement requires the company’s owners to unanimously agree any time the company expends more than $10,000, bids on a new contract, or amends the operating agreement.
Does Emily control Emily’s Chili? Probably not. Although it will take some time to see how the SBA interprets “control” in the WOSB program, it has long required “unconditional” control under similar regulations governing its 8(a) and service-disabled veteran-owned small business programs. If a male owner, board director, or officer has the ability to “veto” the decisions made by the company’s woman leader, the SBA will likely find that the woman does not control the company.
As in the 8(a) and SDVOSB programs, “control” in the WOSB program is a loaded term. If you are a woman-owned small business, or are looking to become one, you should carefully review your company’s bylaws or operating agreement to ensure that men can never outvote or block the ability of the company’s woman leader (or leaders) to make business decisions—even fundamental ones like dissolving the company. In addition, you should make sure that women unconditionally control every layer of the company’s operations—ownership, board of directors, and highest officer. And, be aware that the SBA requires the woman owner to work full-time for the business, during normal working hours, and forego most forms of outside employment.
As the WOSB program continues to mature, the SBA Office of Hearings and Appeals will undoubtedly provide guidance about just how strictly the WOSB “control” requirements will be interpreted. For now, keep in mind that when it comes to WOSB control, there is more to it than might initially meet the eye.