As the businesses on this newsletter list are well aware, having met the Veteran’s Administration certification requirements, the management and daily business operations of a Service-Disabled Veteran-Owned Small Business (SDVOSB) concern must be controlled by one or more service-disabled veterans. However, there may come a time when you, as the owner of a SDVOSB, want to participate in other ventures or businesses. These ventures may, or may not, be related to your current line of business. For veterans with entrepreneurial tendencies, this is more likely than not to arise. Sometimes the business partners in the new enterprise will be different from your current enterprise. But, participating in other ventures may put your veteran certification at risk.
According to 38 CFR § 74.4 (c)(1) “An owner engaged in employment or management outside the applicant concern must submit a written statement supplemental to the application which demonstrates that such activities will not have a significant impact on the owner’s ability to manage and control the applicant concern.” Additionally, 38 CFR § 74.4 (c)(3) provides: “One or more veterans or service-disabled veteran owners who manage the applicant or participant must devote full-time to the business during normal working hours of firms in the same or similar line of business.”
With this in mind, how can you participate in other enterprises? First, work in a wholly-owned subsidiary of the applicant or participant may be considered to meet the requirement of full-time devotion. This applies only to a subsidiary owned by the SDVOS or VOSB itself, and not to firms in which the veteran has a mere ownership interest. 13 C.F.R. § 125.9(a) states that VOSB ownership must be direct. This means that VOSBs must be at least 51% owned by flesh and blood human beings. If the VOSB is the parent company and the other venture is a subsidiary without VOSB status that would comply and count to the full-time participation requirement.
Finally, you can submit a supplemental statement with your certification/recertification application. According to the Office of Small & Disadvanataged Business Utilization, 6.97% of VOSB applications are denied based on the impact of outside employment. Your statement will need to be carefully crafted. Also, depending on the relationship and revenue of these other ventures, the Small Business Administration (SBA) may consider them affiliates. The SBA provides:
The term “affiliate” has a specific legal meaning for the SBA. The definition is at 13 CFR 121.103. Invest the time to study “affiliation” so that you can provide the documentation necessary for your firm to obtain the certification. You will need to provide evidence that your firm, together with your affiliates, meets the size requirement for your primary NAICS code—which means that you must submit either business tax returns or federal unemployment tax returns for each affiliate. Details are in the supporting documentation request.