SBA’s 8(a) BUSINESS
DEVELOPMENT PROGRAM: HOW
TO GET YOUR DUCKS IN A ROW
TO APPLY
May Lu
Tiffany & Bosco, P.A.*
Camelback Esplanade II, Third Floor
2525 E. Camelback Road
Phoenix, AZ 85016
(602) 255-6032
mlu@tblaw.com
* Offices in Phoenix, AZ and Las Vegas, NV
Disclaimer

Information presented here is general information.

Choice of the right legal strategies for your business
depends on your fact situation and how the law and
market conditions apply to that situation.

Consult professional advisors such as your
accountant, insurance professional and business
attorney.
WHY APPLY?





Tough Economy
Increased Competition
Gain Access to Clients that
Want/Require Diversity Certification
Raise Revenues/Grow the Business
Use Certification to Obtain Other
Certifications
INTRODUCTION

What is the 8(a) Business
Development Program?
8(a) PROGRAM

Assists small and disadvantaged
businesses to:


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Compete in the marketplace;
Gain access to federal and private procurement
markets; and
Provide business development support.
8(a) PROGRAM

9-Year Program

4-year developmental stage


Business Development Assistance
5-year transition stage

Overcome Economic Disadvantage
APPLICATION PROCESS

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Update corporate records.
Work with professionals (e.g., attorneys
and CPAs).
Organization is key.
Meet the qualifications.
QUALIFICATIONS

A participant company must be a small business:
(1)
(2)
(3)
(4)
that is unconditionally owned and controlled
by one or more socially and economically disadvantaged
individuals
who are of good character and citizens of and residing in
the United States and
that demonstrates potential for success.
Qualify as Small Business Concern


Identify the North American Industry
Classification System (“NAICS”) industry
code at
http://www.census.gov/eos/www/naics/.
Determine the company’s primary industry
classification (section 121.107 of the NAICS
book published by the U.S. Office of
Management and Budget).
Qualify as Small Business Concern

Use the Table of Small Business Size
Standards to determine the small business size
standards for its industry.
Unconditionally Owned and
Controlled

Must be at least 51% unconditionally
and directly owned by one or more
socially and economically disadvantaged
individuals.
Unconditional Ownership

Ownership not subject to:
conditions precedent or subsequent,
 executory agreements,
 voting trusts,
 restrictions on assignments of voting rights, or
 other arrangements causing or potentially causing
ownership benefits to go to another (other than
after death or incapacity).

Direct Ownership

Cannot be owned by another business entity
or trust that is owned and controlled by the
disadvantaged individual
Stock Ownership

Owner has at least 51% of each class of
voting stock outstanding AND 51% of the
aggregate of all stock outstanding.
Stock Ownership

The disadvantaged individual must be entitled
to receive:



At least 51% of the annual distribution of dividends,
100% of the value of each share of stock owned by them
in the event the stock is sold, AND
At least 51% of the retained earnings of the concern &
100% of the unencumbered value of each share of stock
owned in the event of dissolution.
Community Property Issues


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State community property laws apply.
Disadvantaged spouse’s ownership
interest unconditionally held only to the
extent it is vested by the community
property laws.
A transfer or relinquishment of interest
by the non-disadvantaged spouse may be
necessary.
Control
Control is NOT the same as
Ownership.
Control

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Manage the company on a full-time basis and
possess the requisite management capabilities;
Hold the highest officer position (President or CEO)
and be physically located in the United States;
Devote full-time to the business during normal
working hours; and
Control the Board of Directors
Control of the Board of Directors

Must meet 1 or more of these criteria:
Own all voting stock;
 Own at least 51% of all voting stock, is on the
Board, and no super majority voting requirement
or can overcome the super majority voting
requirement; OR
 More than 1 disadvantaged shareholder that own at
least 51% of the voting stock, they are all on the
Board, and have a block voting arrangement.

Control of the Board of Directors

If the company cannot meet these
requirements, then the
disadvantaged individual must
control the Board through actual
number of voting directors or
through weighted voting.
 Subject to additional conditions.
Non-Disadvantaged Individuals &
Immediate Family Members

May be involved in the management and
may be stockholders, officers, and
directors.
Non-Disadvantaged Individuals &
Immediate Family Members

May Not:

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Exercise control or have the power to control;
Be a former employer or principal of a former
employer of any disadvantaged owner (unless no
actual control and is in the best interests of the
company); OR
Receive more compensation than the
disadvantaged owner.
SOCIALLY DISADVANTAGED

Members of Designated Groups

There is a rebuttable presumption that certain
individuals are socially disadvantaged, such as:

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Black Americans;
Hispanic Americans;
Native Americans; and
Asian Pacific Americans.
SOCIALLY DISADVANTAGED

Not a Member of Designated Groups

Must prove that he or she is socially
disadvantaged by a preponderance of the
evidence through a detailed narrative statement.
SOCIALLY DISADVANTAGEDPROOF


At least one objective distinguishing feature
that has contributed to social disadvantage,
such as race, ethnic origin, gender, or physical
handicap;
Personal experiences of substantial and
chronic social disadvantage in American
society; and
SOCIALLY DISADVANTAGEDPROOF

Negative impact on entry into or
advancement in the business world
because of the disadvantage:



Education,
Employment, and
Business history.
ECONOMICALLY DISADVANTAGED

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 who are not socially
disadvantaged.
ECONOMICALLY DISADVANTAGED

Must submit:
A narrative statement describing the economic
disadvantage and
 Personal financial information.

ECONOMICALLY DISADVANTAGEDTHREE TESTS

Any individual who exceeds any of these 3
thresholds will be deemed to not be
economically disadvantaged:
1.
2.
3.
Income for the past three years (including
bonuses & value of stock received in lieu of
cash),
Personal net worth, and
The fair market value of all assets, whether
encumbered or not.
1 - Personal Income Analysis


Presumption that an individual is not economically
disadvantaged if adjusted gross income averaged
over the three years preceding the application
exceeds $250,000.
Rebuttable if:

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Income level was unusual and not likely to occur in the future,
Losses commensurate with and directly related to the earnings were
suffered, or
Income is not indicative of a lack of economic disadvantage.
1 - Personal Income Analysis

Exclude:

Income received from a company that is an Scorporation, LLC, or partnership if income was
reinvested into the company or used to pay taxes
arising in the normal course of operations.
2 - Net Worth Analysis


The individual’s net worth must be less than $250,000.
Exclude:
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Equity in the primary personal residence;
Value of the individual’s ownership interest in the company;
Funds invested in an IRA or other official retirement
accounts; and
Income received from a company that is an S-corporation,
LLC, or partnership if income was reinvested into the
company or used to pay taxes arising in the normal course of
operations.
3 - Total Asset Analysis



Presumption that an individual is not economically
disadvantaged if the fair market value of all assets
exceeds $4 million.
Not Excluded:
 Fair market value of the primary personal
residence; and
 Value of the individual’s ownership interest in the
company
Exclude:
 Funds invested in a qualified IRA account
Spouse


Must submit separate financial information for the
disadvantaged individual and for spouse.
Spouse’s financial condition considered if Spouse:


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Has a role in the business (e.g., an officer, employee or
director) or
Has lent money to, provided credit support to, or
guaranteed a loan of the business.
SBA does not take into consideration community
property laws for economically disadvantaged
analysis.
WHO MUST HAVE GOOD
CHARACTER

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Company;
Proprietor;
Director;
Officer;
Holder of at least 10% of its stock; AND
Another person (including key employees) with
significant authority over the company.
BAD CHARACTER


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Lacks business integrity related to indictment, guilty
plea, conviction, civil judgment, or settlement;
Is currently incarcerated, or on parole or probation
due to conviction for a felony or any crime involving
business integrity;
Knowingly submits false information in its
application and accompanying documents to SBA;
BAD CHARACTER

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Violates any of SBA’s regulations;
Fails to pay significant financial obligations
owed to the Federal Government, including
unresolved tax liens and defaults on Federal
loans or other Federally assisted financing; or
Is involved in any possible criminal conduct.
CITIZENS OF AND RESIDING
IN UNITED STATES

The individual must be physically located in
the United States.
POTENTIAL FOR SUCCESS


Company must be in business in its primary
industry classification for at least 2 full years
immediately prior to the date of its
application; and
Company’s income tax returns for each of the
previous 2 years must show operating
revenues in the primary industry
classification.
POTENTIAL FOR SUCCESSFACTORS
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Access to credit and capital;
Technical and managerial experience of the company’s
managers;
Operating history;
Record of performance on previous Federal and private sector
contracts in its primary industry;
Financial capacity; and
Technical knowledge in its primary industry category and
management experience sufficient to run its day-to-day
operations.
MORE INFORMATION
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13 C.F.R. § 124
SBA website:
http://www.sba.gov/content/8a-businessdevelopment
8(a) Business Development Suitability
Tool
QUESTIONS?