The Women-Owned Small Business (WOSB) Federal Contract Program is an opportunity for women who have a controlling business interest in a company to seek federal funds up to $5 million for manufacturing and $3 million for services in one of 83 industries that are underrepresented by women. The WOSB and its partner program, the Economically Disadvantaged WOSB, require that women interested in receiving funds prove that they have 1) 51% unconditional and direct ownership of the business and 2) 51% control in the business in terms of decision-making and day-to-day operations. Additional conditions must be met for the EDWOSB, and applicants will need to qualify for federal and state certification. For more on this continue reading the following article from JDSupra.
Earlier this year the U.S. Small Business Administration announce drevisions to the Women-Owned Small Business (WOSB) Federal Contract Program. This program now authorizes contracting officers to set aside certain government contract opportunities for competition exclusively between qualifying women-owned entities. These set-asides are for contracts in one of 83 different industries where women are under represented. Awards can go as high as $5 million for manufacturing or $3 million for services.
The WOSB Federal Contract Program is just one example of the assistance available to qualifying women-owned businesses. As part of Department of Transportation funding requirements, both New Hampshire and Massachusetts also have programs designed to allocate certain percentages of monies to qualifying women-owned entities.
Separately, Massachusetts has set aspirational goals for percentages of state government contracts it wants awarded to women-owned businesses. (Massachusetts targets more than $240 million to certified minority and women-owned businesses.) Finally, many municipalities and larger private businesses have their own internal diversity objectives and initiatives, andseek to partner or contract with women-owned businesses.
Overall, qualifying and certifying as a women-owned business may create a number of opportunities for your company. This article addresses how an entity qualifies and gets certified as a women-owned business under the WOSB Federal Contract Program. The requirements for qualificationfor that program are very similar to those required by the referenced New Hampshire and Massachusetts state programs, although certification with states takes a slightly different form. Qualifying and potentially qualifying entities should seriously evaluate the opportunities these programs could afford their business in determining whether to seek certification.
Qualifying as a WOSB or EDWOSB: Jack and Jill Went Up A Hill and Formed an LLC.
The WOSB Federal Contracting Program provides a good template in evaluating how an entity may qualify as a women-owned business that may receive contracting benefits. The program focuses on two types of entities: WOSBs and Economically Disadvantaged Women Owned Small Businesses (EDWOSBs). To qualify as a WOSB or EDWOSB, the business must first qualify as a small business as established by the Small Business Administration. Additionally, to qualify as a WOSB or EDWOSB one or more women, who are United States citizens, must unconditionally and directly own and control at least 51 percent of the business. We can explore these further requirements by looking at the actions of two hypothetical entrepreneurs: Jack and Jill.
Unconditional and Direct Ownership of the Business
The 51% ownership requirement to qualify as a WOSB or EDWOSB applies regardless of the form of the entity. So imagine that Jack and Jill set up Pail of Water, LLC. To qualify as a WOSB Jill must be able to show (through articles of organization and operating agreements) that she unconditionally owns at least 51% of each class of membership interest in the company. Alternatively, if Jack and Jill set up Pail of Water, Inc., to qualify as a WOSB Jill must be able to show (through stock ledgers and stock certificates) that she unconditionally owns at least 51% of each class of outstanding voting stock, and 51% of the aggregate of all outstanding stock.
For Jill’s ownership to be considered unconditional, it cannot be subject to any conditions, executory agreements, voting trusts, or other arrangements that cause or potentially have the result that benefits of her ownership go to another. So, for example, imagine that Pail of Water, LLC’s operating agreement has a transfer of ownership provision stating that Jill must give Jack a right of first refusal if she decides to sell her interest in the company, and that she must offer Jack her interest at the same price she paid for it initially. Such a provision would mean that Jill’s ownership rights in the LLC are conditional and encumbered, and Pail of Water, LLC could not qualify as a WOSB. Note, however, that the program does allow Jill to pledge or encumber her ownership interest as collateral, provided that the terms of loan agreement follow normal commercial practices and Jill retains control absent violations of the terms.
For Jill’s ownership to be considered direct, she must directly own her interest without any intermediaries. So, if Jill owned 100% of Fetch, Inc. which was a parent company that owned 51% of Pail of Water, Inc., Jill would not have direct ownership of Pail of Water, Inc. The rules do make an exception for ownership of an entity by a trust,such as a living trust, which may be treated as directly owned by a woman where the trust is revocable, and the woman is the grantor, a trustee, and the sole current beneficiary of the trust.
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Control of the Business
However, beyond ownership of the entity, women must also control at least 51% of the business to qualify as a WOSB. Control in this regard means that a woman must direct both the long-term decision making and the day-to-day management and administration of the business operations. If the operating agreement for Pail of Water, LLC requires that both Jack and Jill approve and authorize various activities (like entering into contracts or withdrawing or transferring LLC funds) then Jill would not possess the requisite control over the entity. Jill (or another woman) must hold the highest officer position in the business (typically President or Chief Executive Officer) and she must have appropriate and adequate managerial experience to run the business. Assuming Jill is the highest ranking officer, she may not hold another job if that employment prevents her from devoting sufficient time and attention to the daily affairs of the WOSB.
For entities with a board of directors, women must control the same to qualify as a WOSB. Jill will be deemed to control the board of Pail of Water, Inc. if she owns at least 51% of all voting stock of the concern, sits on the board of directors, and has the percentage of voting stock necessary to overcome any super majority voting requirements. So if Pail of Water, Inc. both has a board and requires that at least 75% of shareholders approve significant business changes (mergers), then Jill must own at least 75% of the voting stock and sit on the board of directors in order to qualify as a WOSB. If Jack, Jill, and Jane all sit on the board, then Pail of Water, Inc. could still qualify, provided that the women comprised the majority of voting directors through actual numbers or weighted voting.
Note, that the control requirement does not necessarily mean that a woman manager has to have the technical expertise or any required licenses needed to run the business. Provided she can demonstrate that she has ultimate managerial and supervisory control over those possessing those skills or credentials, her control would be sufficient to qualify for the program. So if Jill is the President of Pail of Water, LLC (a hydro-engineering firm),and Jack is the company’s licensed engineer, Jill would still be able to qualify as a WOSB if she has ultimate control over the operation of the company. Be aware, however, that in the same scenario, if Jack also owns anequity interest in the company, the SBA may find that he ultimately controls the firm.
Additional Economic Conditions to Qualify as an EDWOSB
EDWOSBs are WOSBs that are owned and controlled by economically disadvantaged women. A woman is considered economically disadvantaged if she can demonstrate that her ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business. There is a presumption of economic disadvantage if a woman has a personal networth of less than $750,000, her adjusted gross yearly income averaged over the three years preceding any certification as an EDWOSB is less than or equal to $350,000, and the fair market value of all her assets (including, for example, her primary residence and the value of her business) do not exceed $6 million. In calculating net worth, one may be required to include their spouse’s income as well as transfers made to immediate family members within the past two years.
Great! We Qualify- Now What?
Depending on which programs one wishes to participate in, companies must go through a certification process, the rigors of which vary.
In order to participate in the WOSB Federal Contract Program, an entity must self-certify that the business is a qualifying entity (certification through a “Third Party Certifier” is also an option, but the SBA has yet to designate any approved certifiers). Self-certification requires registration in the Central Contractor Registration (CCR), submission of supporting documentation (including evidence of citizenship, business organization documents,and a personal financial statement for EDWOSBs), and a separate certification document with the WOSB Program Repository. Lastly, once the above requirements have been satisfied, the business must represent itsstatus as a WOSB or EDWOSB in the Online Representations and Certification Application (ORCA).
Remember, that even if you have previously represented in the CCR that you are woman-owned, you must still register as a WOSB or EDWOSB in order to participate in the WOSB Federal Contract Program.
New Hampshire does not have a certification for women-owned businesses, but such entities may certify as a Disadvantaged Business Enterprise (DBE) with the Department of Transportation (DOT). The qualifying requirements are the same as for ESWOSB listed above. An entity wishing to certify as a DBE must submit a certification application to the New Hampshire DOT, along with all required supporting documentation, including resumes, personal financial statements, tax returns, asset lists, and business organization documents. The New Hampshire DOT reviews the application, and provided that standards are met, will arrange for an “on-site evaluation” of the company. Once certified the entity is required to file annual maintenance documentation.
Massachusetts offers certification for both DBEs and Women Business Enterprises (WBE) through its Supplier Diversity Office. The qualifying requirements are largely the same as those outlined above, including the submission of supporting documentation and the requirement for site visits. WBE’s may be certified without any requirement that the owner be economically disadvantaged, nor that the entity be considered a small business according to SBA standards.
Note that an entity need not be located in a particular state in order to be certified in that state as a DBE (or WBE in Massachusetts). So a New Hampshire firm can certify as a DBE in Massachusetts and vice versa.
While the qualification and certification process is certainly achievable, it should not be taken lightly. The documentation required to support a certification is substantial and the process does require a commitment oftime and energy. Moreover, there can be serious civil and criminal penalties if an individual falsely self-certifies, misrepresents its status, or provides false information to the government. However, provided that a business does qualify as a WOSB or DBE, and is willing to put forth the effort to certify, the rewards may well be worth the trouble.
Certification as a woman-owned business is but one arrow in your business development quiver. While certification does not guarantee success or future contracts, it could present new opportunities or provide your firm exposure to a number of new potential business partners who otherwise would not be aware of your company. On the whole, businesses should evaluate their structure and operations and consider the possible advantages that certifying as a women-owned business may provide to them.
This article was republished with permission from JD Supra.
This article is intended to serve as a summary of the issues outlined herein. While it may include some general guidance, it is not intended as, nor is it a substitute for, legal advice.