Control is not the same as ownership. For example a disadvantaged individual may own 51% of the business that is applying for 8(a) Certification but they may be found to not unconditionally control the company by the SBA.
As defined by the SBA in CFR 124.106, the SBA regards control as including both the strategic policy setting exercised by boards of directors and the day-to-day management and administration of business operations of the business.
In order to be found to control the business, here are the following requirements:
1. The disadvantaged individual must manage the daily business operations (Except for concerns owned by Indian tribes, ANC’s, NHO’s or CDC’s).
2. The disadvantaged individual must have managerial experience of the extent and complexity to run the business.
3. The disadvantaged individual need not have the technical expertise or possess the required license to be found to control the business if he or she can demonstrate that he or she has ultimate managerial control over those who possess the required license or technical expertise. However – where a critical license is held by a non-disadvantaged individual have an equity interest in the business, the non-disadvantaged individual may be found to control the business.
4. The disadvantaged individual must work full-time in the business, without any outside employment. In addition, the disadvantaged individual must devote full-time during the normal working hours of the business. If the disadvantaged individual works in a wholly owned subsidiary of the business this full-time devotion may be considered to meet the requirement of full-time devotion.
5. The disadvantaged individual must hold the highest officer position in the business. (Usually President or CEO).
6. The disadvantaged individual must be physically located in the USA.
7. If the business is a partnership, the disadvantaged individual must serve as the general partner with control over all partnership decisions.
8. If the business is a limited liability company, the disadvantaged individual must serve as management members with control over all decisions of the LLC.
9. If the business is a corporation, the disadvantaged individual must control the Board of Directors. See CFR 124.106 for Board of Director Control requirements.
10. No non-disadvantaged individual or immediate family member may be a former employer or principal of any disadvantaged individual, unless the relationship between the former employer or principal and the disadvantaged individual does not give the former employer actual control or the potential to control the business and such relationship is in the best interest of the business.
11. The disadvantaged individual must be the highest compensated individual.
12. Non-disadvantaged individuals who transfer the majority ownership or control of the firm to an immediate family member, within two years prior to the 8(a) Application and remain involved in the firm are presumed to control the firm.
13. The disadvantaged individual must be a guarantor of any critical financing or bond, if required.
14. Business relationships that exist with non-disadvantaged individuals or entities which cause economic dependence will cause a control issue.