SBA’s 8(a) BUSINESS DEVELOPMENT PROGRAM: HOW TO GET YOUR DUCKS IN A ROW TO APPLY

1. 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

2. 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.

3. 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

4. INTRODUCTION What is the 8(a) Business Development Program?

5. 8(a) PROGRAM • Assists small and disadvantaged businesses to: • Compete in the marketplace; • Gain access to federal and private procurement markets; and • Provide business development support.

6. 8(a) PROGRAM 9-Year Program 4-year developmental stage Business Development Assistance 5-year transition stage Overcome Economic Disadvantage

7. APPLICATION PROCESS Update corporate records. Work with professionals (e.g., attorneys and CPAs). Organization is key. Meet the qualifications.

8. QUALIFICATIONS • A participant company must be a small business: • 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.

9. 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).

10. Qualify as Small Business Concern • Use the Table of Small Business Size Standards to determine the small business size standards for its industry.

11. Unconditionally Owned and Controlled • Must be at least 51% unconditionally and directly owned by one or more socially and economically disadvantaged individuals.

12. 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).

13. Direct Ownership • Cannot be owned by another business entity or trust that is owned and controlled by the disadvantaged individual

14. Stock Ownership • Owner has at least 51% of each class of voting stock outstandingAND51% of the aggregate of all stock outstanding.

15. 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.

16. Community Property Issues • 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.

17. Control Control is NOT the same as Ownership.

18. Control 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

19. 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.

20. 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.

21. Non-Disadvantaged Individuals & Immediate Family Members May be involved in the management and may be stockholders, officers, and directors.

22. Non-Disadvantaged Individuals & Immediate Family Members May Not: 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.

23. SOCIALLY DISADVANTAGED • Members of Designated Groups • There is a rebuttable presumption that certain individuals are socially disadvantaged, such as: • Black Americans; • Hispanic Americans; • Native Americans; and • Asian Pacific Americans.

24. 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.

25. SOCIALLY DISADVANTAGED-PROOF • 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

26. SOCIALLY DISADVANTAGED-PROOF Negative impact on entry into or advancement in the business world because of the disadvantage: Education, Employment, and Business history.

27. 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.

28. ECONOMICALLY DISADVANTAGED • Must submit: • A narrative statement describing the economic disadvantage and • Personal financial information.

29. ECONOMICALLY DISADVANTAGED-THREE TESTS • Any individual who exceeds any of these 3 thresholds will be deemed to not be economically disadvantaged: • 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.

30. 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: • 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.

31. 1 - Personal Income Analysis Exclude: 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.

32. 2 - Net Worth Analysis • The individual’s net worth must be less than $250,000. • Exclude: • 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.

33. 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

34. Spouse • Must submit separate financial information for the disadvantaged individual and for spouse. • Spouse’s financial condition considered if Spouse: • 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.

35. WHO MUST HAVE GOOD CHARACTER • Company; • Proprietor; • Director; • Officer; • Holder of at least 10% of its stock; AND • Another person (including key employees) with significant authority over the company.

36. BAD CHARACTER • 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;

37. BAD CHARACTER • 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.

38. CITIZENS OF AND RESIDING IN UNITED STATES • The individual must be physically located in the United States.

39. 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.

40. POTENTIAL FOR SUCCESS-FACTORS • 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.

41. MORE INFORMATION • 13 C.F.R. § 124 • SBA website: http://www.sba.gov/content/8a-business-development • 8(a) Business Development Suitability Tool

42. QUESTIONS?