The SBA’s 8(a) BD Program can be super lucrative for firms that go through the process of getting certified with the average 8(a) firm doing $5MM to $7MM per year in federal contracting sales. 8(a) firms that are doing well in the program can do much more than that, as there are seemingly endless contracting opportunities. These firms generally stop doing “bread and butter” 8(a) sole source contracts and move on to exclusively utilizing much beefier 8(a) set-aside contracts. These owners are very excited about the potential it has given their business, however, their sales are limited to maintaining small business status as well as the nine years of overall 8(a) program eligibility.

These successful owners oftentimes would like to get another 8(a) revenue source online by virtue of a minority stake in another business. Therefore, this week I am going to go into the Maximum Allowable Ownership allowed for non-applicants so that an investment by another does not eliminate your 8(a) eligibility.

Preface
The SBA sets restrictions on minority owners (those less than 50%) of the current/applicant 8(a) firm. These restrictions are designed to eliminate control issues from 8(a) firms, as well as promote competition within the 8(a) BD Program.

Below are the limitations set by Federal Acquisition Regulation:

Discussion Points

1. For the purposes of FAR §124.105, there is no difference between the minority ownership position in the current/applicant 8(a) firm being held directly by an individual or by another firm. Either way the SBA will look at the other firm and its owner(s) for these restrictions related to prior 8(a) status and similar industry.

2. There are no restrictions on the minority owner if he/she owns no other similar business and have never been in the 8(a) program.

3. An 8(a) firm is considered to be a developmental firm, if it is in the first four years of the program, and is considered a transitional firm, if it is in year five through year nine of the program. This criteria is on the current 8(a) firm, not on the other firm that the minority owner has an interest in.

4. A minority owner and his/her immediate family (their wife, kids, siblings) are all considered as one person if there in an 8(a) firm in that group.

5. The minority owner in the current/applicant 8(a) firm, in some cases, does not have to own any percentage of the other firm that he or she works for, if it is in a similar industry. The SBA can still deny the application if the minority owner is an officer, or other key employee, or highly compensated individual, in the similar firm.

I have included FAR §124.105 (h) 1 and 2 for your convenience.

(h) Ownership restrictions for non-disadvantaged individuals and concerns.

(1) A non-disadvantaged individual (in the aggregate with all immediate family members) or a non-Participant concern that is a general partner or stockholder with at least a 10 percent ownership interest in one Participant may not own more than a 10 percent interest in another Participant that is in the developmental stage or more than a 20 percent interest in another Participant in the transitional stage of the program. This restriction does not apply to financial institutions licensed or chartered by Federal, state or local government, including investment companies which are licensed under the Small Business Investment Act of 1958.

(2) A non-Participant concern in the same or similar line of business or a principal of such concern may not own more than a 10 percent interest in a Participant that is in the developmental stage or more than a 20 percent interest in a Participant in a transitional stage of the program, except that a former Participant or a principal of a former Participant (except those that have been terminated from 8(a) BD program participation pursuant to §§ 124.303 and 124.304) may have an equity ownership interest of up to 20 percent in a current Participant in the developmental stage of the program or up to 30 percent in a transitional stage Participant, in the same or similar line of business.

I hope this clears up any issues you might have on ownership interests with 8(a) firms. If you would like to know and understand more clearly your firm’s current set of circumstances and/or whether or not now would be a good time to apply for 8(a), I always recommend contacting an industry expert such as ez8a or Advance 8a. Neither charge for an initial consultation.