Story excerpt provided by Morrison & Foerster’s Government Contracts Insights

Written by Damien Specht, James Tucker, Steven Cave and Victoria Dalcourt Angle

One of the easiest small business affiliation rules to apply is that a person that owns “50 percent or more of a concern’s voting stock . . . controls or has the power to control the concern.” 13 C.F.R. § 121.103(c)(1).  It is far more difficult, however, for minority owners that own less than 50 percent of a concern’s voting stock to determine what, if any, controls they can have over a small government contractor without jeopardizing their small business status.  The Small Business Administration (SBA) has long held that minority owners may have negative controls to protect their investment without creating affiliation as long as the negative controls do not create control over day-to-day business operations. In recent cases, SBA’s Office of Hearings and Appeals (OHA) has further clarified what specific arrangements may comply with that rule.

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Originally published November 26, 2018