U.S. Small Business Certification
The federal government has a unique program that assists disadvantaged businesses by registering them for government contracts. In other words, as a “small business” you have a higher probability of obtaining a government contract before a business that is not registered as a “small business.” The U.S. Small Business Administration (“SBA”) defines a “small” business in terms of the average number of employees over the past 12 months or average annual receipts over the past three years. The SBA defines a U.S. small business as a concern that:
- Is organized for profit;
- Has a place of business in the US;
- Operates primarily within the U.S. or makes a significant contribution to the U.S.; economy through payment of taxes or use of American products, materials or labor;
- Is independently owned and operated; and
- Is not dominant in its field on a national basis.
The business may be created under any legal form: sole proprietorship, partnership, corporation, etc. In determining what constitutes a small business, the definition will vary.
Section 8(a)—Business Development Program
Section 8(a) was created to assist disadvantaged businesses that are controlled and owned by economically and socially disadvantaged individuals. Being a part of the program helps aspiring entrepreneurs gain a foothold in government contracting. Benefits of the program include the ability to: (1) receive sole-source contracts, up to a ceiling of $4 million for goods and services and $6.5 million for manufacturing; (2) form joint ventures and bid on contracts with other section 8(a) firms; and (3) participate in the Mentor-Protégé program.
SBA maintains district offices to help monitor and measure the progress of the small businesses participating in the program. South Florida’s SBA district office is located at 100 South Biscayne Blvd., 7th Floor, Miami, FL 33131.
Getting Started—Eligibility Requirements
To be approved into the 8(a) Business Development program and become certified, the business must meet the following eligibility requirements:
- The business must be majority-owned (51% or more) by an individual(s).
- The individual(s) must be an American citizen, by birth or naturalization.
- The business must be majority-owned (51% or more) and controlled/managed by socially and economically disadvantaged individual(s).
- The individual(s) controlling and managing the firm on a full-time basis must meet the SBA requirement for disadvantage, by proving both social disadvantage and economic disadvantage.
- The business must be a small business.
- The business must demonstrate potential for success.
- The principals must show good character.
Socially disadvantaged individuals
Under federal law, socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias because of their identification as members of those groups without regard to their individual qualities.
The following individuals are presumed socially disadvantaged (“presumed groups”):
- Black Americans
- Hispanic Americans
- Native Americans
- Asian Pacific Americans
- Subcontinent Asian American
An individual applicant is presumed socially disadvantaged if:
- Holds him or herself out to be a member of a presumed group
- Is currently identified by others as a member of a presumed group
However, be aware that an individual who is not a member of one of the “presumed groups” can be still be admitted into the 8(a) Business Development program. An individual can be found to be socially disadvantaged and these determinations are done on a case-by-case basis.
Economic disadvantaged eligibility
Note that the SBA cannot find an individual to be economically disadvantaged unless it has found the individual to be socially disadvantaged. The majority individual owner needs to prove that he or she is both economically and socially disadvantaged. However, an exception is available for businesses owned by an entity. Those businesses have different requirements and generally do not have to prove economic disadvantage for individual owners. Those eligible entities are American Indians, Native Alaskans, Native Hawaiians and Certified Development Companies.
The SBA defines “[e]conomically disadvantaged individuals as socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities.”
In the event you do not qualify for that exception, to determine if an individual is also economically disadvantaged, each socially disadvantaged individual must provide the SBA with the following:
- (1) Narrative statement of economic disadvantage and
- (2) Personal financial information (including tax returns and certain SBA forms)
- In every case, when married, the socially disadvantaged individual must submit separate financial information to SBA for his or her spouse (including tax returns and certain SBA forms).
All businesses participating in the Business Development Program must be owned by disadvantaged individuals owning at least 50% of the business.
To be approved and remain in the 8(a) Business Development program, the firm must show that one or more socially and economically disadvantaged individuals:
- Owns at least 51 percent or more of the firm
- Possesses direct ownership, meaning the firm is neither owned through another firm nor trust (with the exception of certain living trusts)
- Has unconditional ownership, without restrictions or conditions
- Is entitled to receive distributions commensurate with ownership percentages – both annually and when stock is sold or firm is dissolved.
**There are also specific SBA regulations on ownership by immediate family members, non-disadvantaged individuals, and by other firms
All business approved to participate in the Small Business Development Program must be controlled by the disadvantaged majority owner. It is important to know that control and ownership are not the same and are evaluated differently by the SBA.
To determine control, the SBA requires the business to show that:
- One or more socially and economically disadvantaged individuals:
- Serves as the highest officer
- Controls the board
- Makes long-term decisions
- Runs the firm’s day-to-day business operations
- Receives the highest compensation from the firm
- Possesses the appropriate amount and type of management experience needed to run the firm
- Must possess the needed technical experience or critical licenses the firm needs or show ultimate managerial and supervisory authority over those who do
- Work full-time at the applicant firm
- Unconditional control by disadvantaged individuals.
Businesses approved, and remaining in, the Business Development program must be a small business. Size is determined by the SBA and is determined by either averaging the firm’s receipts over three years or based on the number of firm employees. Businesses must be small at the time of application and remain small during the participation.
There’s more . . .
- The firm and all its principals must show good character. SBA looks at the following to make this decision:
- Adverse information regarding criminal conduct
- Violations of any SBA regulations
- Debarred or suspended firms
- Debarred or suspended persons
- Submission of false information during the application process or after approval
- A firm will be automatically declined if the firm, its owner, manager, partners, LLC member, director, officer, key employee, or any owner of more than 10 percent:
- Lacks business integrity (i.e. any legal issues such as indictments, guilty pleas, convictions, judgments, settlements)
- Is currently incarcerated or on parole or probation (either pre-trial or following conviction for felony or any crime involving business integrity)
- The application package requires this form be completed by the firm principals
One-Time Only Eligibility
Not many people know this but it is important to know that once a business or disadvantaged individual has participated in the program, neither the business nor that individual will be eligible again. The SBA will automatically decline those applications.
Hence, a business may participate only once. It does not matter if ownership and control has completely changed; the firm will be declined if it applies again.
Likewise, the SBA automatically declines applications from the following:
- Nonprofit organizations (except Community Development Corporations)
- Businesses owned by another firm, even if that firm is owned by another disadvantaged firm or firms (except for certain firms owned by parent corporation that is, in turn, owned by an Alaska Native Corporation or Native Hawaiian Organization)
Synopsis version: A small business must meet certain requirements to qualify for Section 8(a) status and must maintain each requirement in order to continue participating in the Business Development Program.
If you are seeking to obtain Section 8(a) status or would like more information as to whether you qualify, schedule a consultation with the experienced attorneys at EPGDLaw today, located in beautiful Coral Gables. Call us at (786) 837-6787 or e-mail us to schedule a consultation.
Florida and Small Businesses
Each county in Florida has its own small business enterprise certification requirements. Our focus will be on Miami-Dade County and Broward County.
Miami-Dade County offers different small business programs with different requirements and classifications depending on whether you are a construction company, are part of the architectural industry, or provide aeronautical services. If you believe you fall under any of those categories and want more information, please call EPGD Attorneys at Law. Our contact information can be found below.
For small businesses that provide goods and/or services to Miami-Dade, the Small Business Enterprise (SBE) would be an ideal fit. The SBE program, which is race and gender neutral, consists of two tiers.
(1) Micro Enterprise (Micro) – three (3) year average annual gross revenues cannot exceed 2 million dollars except manufacturers whose number of employees cannot exceed fifty (50) and wholesalers whose number of employees cannot exceed fifteen (15).
(2) Small Business Enterprise (SBE) – three (3) year average gross revenues cannot exceed 5 million dollars except manufacturers whose number of employees cannot exceed one hundred (100) and wholesalers whose number of employees cannot exceed fifty (50).
- Located and performing a commercially useful function in Miami-Dade County;
- Must be properly licensed to do business with Miami-Dade County;
- Completion of Vendor Registration Package with the Department of Procurement is highly recommended;
- Must own only one certified Micro/SBE certified firm;
- Must be an established business for at least one-year;
- Annual Continue Eligibility required.
Miami-Dade County also offers a disadvantaged business program which includes classification as a Disadvantaged Business Enterprise (DBE) which is a federal program that ensures equal opportunity in transportation contracting markets, addresses the effects of discrimination in transportation contracting, and promotes increased participation in federally funded contracts by small, socially and economically disadvantaged businesses, including minority and women owned enterprises. Miami-Dade County is a Unified Certification Program member and processes applications for DBE certification. If this is a program you are interested in, an application must be submitted to SBD for processing. The application can be found online at: http://www.dot.state.fl.us/equalopportunityoffice/dbecertification.shtm.
Like Miami-Dade County, Broward County operates a Small Business Program. Broward County’s Small Business Enterprise (SBE) program is a race and gender neutral program that allows all SBE-certified businesses to receive first consideration for contracts under $250,000. The goal of the program is to spur economic development and stimulate small business growth by increasing the number of small businesses acting as prime contractors or consultants for Broward County. These projects are identified as sheltered market / reserved projects for certified Small Business Enterprises (SBEs).
To qualify for the program, each business must meet the following SBE eligibility requirements:
- The business must be independent;
- The business must have a continuing operating presence in Broward County for at least one year prior to submitting an application;
- The business shall employ 25 or fewer permanent full-time employees;
- Each owner must not have a personal net worth exceeding $750,000;
- For businesses in Construction Services, the annual gross revenues must not exceed $3 million, calculated over the previous three (3) calendar years
- For businesses in Contractual Services, the annual gross revenues must not exceed $1 million, calculated over the previous three (3) calendar years
- For Professional Consultants, the annual gross revenues must not exceed $500,000, calculated over the previous three (3) calendar years
- Firms selling Commodities to Broward County, are not subject to any gross revenue limitations.
If you are seeking to obtain small business certification in either Miami-Dade or Broward County or would like more information as to whether you qualify, schedule a consultation with the experienced attorneys at EPGDLaw today, located in beautiful Coral Gables. Call us at (786) 837-6787 or e-mail us to schedule a consultation.