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Virginia Administrative Code
Title 7. Economic Development
Agency 13. Department of Small Business And Supplier Diversity
Chapter 20. Regulations to Govern the Certification of Small, Women-Owned, and Minority-Owned Businesses
8/8/2022

7VAC13-20-110. Control.

The applicant must show evidence that the women, minority, or individual owners have control of the business. The following factors will be examined in determining who controls an applicant's business:

1. Governance.

a. The organizational and governing documents of an applicant (e.g., limited liability company operating agreements, partnership agreements, or articles of incorporation and bylaws) must not contain any provision that restricts the ability of the women, minority, or individual owners from exercising managerial control and operational authority of the business.

b. In reviewing governance documents and issues, special attention shall be given to:

(1) The composition of the business's governing body (e.g., board of directors or management committee);

(2) The functioning of the governing body;

(3) The content of shareholder's agreements, bylaws, or state incorporation statutes, and the extent to which such agreements, bylaws, or statutes affect the ability of the women, minority, or individual owners to direct the management and policy of the business; and

(4) In a business seeking certification as a women-owned or minority-owned business, a woman or a minority owner must hold the highest executive officer position in the company by whatever title.

2. Operation and management.

a. The women, minority, or individual owners must possess the power to direct or cause the direction of the management and policies of the business and to make the day-to-day decisions as well as major decisions on matters of management, policy, and operations. The business must not be subject to any formal or informal restrictions that limit the customary discretion of the women, minority, or individual business owners.

b. A previous or continuing employer-employee relationship between or among present owners shall be carefully reviewed to ensure that the woman, minority, or individual employee-owner has management responsibilities and capabilities.

c. In the event that the actual management of the business is contracted or carried out by individuals other than the women, minority, or individual owners, those persons who have the ultimate power and expertise to hire and fire the managers can for this purpose be considered as controlling the business.

d. The applicants must show evidence that the women, minority, or individual owners have operational authority and managerial control of the applicant.

(1) Operational authority. For purposes of this section, "operational authority" means the extent to which the women, minority, or individual owners actually operate the day-to-day business. Assessments of operational control will rest upon the peculiarities of the industry of which the business is a part. In order to ascertain the level of operational control of the women, minority, or individual owners, the following will be considered:

(a) Experience. The women, minority, or individual owners shall have education, demonstrable working knowledge, or experience in the area of specialty or industry claimed in the certification application.

(b) Responsibility for decision making. The women, minority, or individual owners shall be able to demonstrate a role in making basic decisions pertaining to the daily operation of the business.

(c) Technical competence. The women, minority, or individual owners shall have technical competence in the industry or specialty of the applicant business or a working knowledge of the technical requirements of the business sufficient enough to critically evaluate the work of subordinates.

(2) Managerial control. For purposes of this section, "managerial control" is the demonstrated ability to make independent and unilateral business decisions necessary to guide the future and destiny of the business. Managerial control may be demonstrated in a number of ways. For women, minority, or individual owners to demonstrate the extent of their managerial control, the department will consider the following (not intended to be all inclusive) areas of routine business activity:

(a) The women, minority, or individual owners must produce documents that clearly indicate control of basic business functions (e.g., authority to sign payroll checks and letters of credit, signature responsibility for insurance or bonds, authority to negotiate and execute contracts and financial services).

(b) Agreements for support services that do not impair the woman, minority, or individual owner's control of the company are permitted as long as the owner's power to manage the company is not restricted or impaired as determined by the department in its sole administrative discretion.

3. Independence.

a. Performance.

(1) The woman, minority, or individual owner's expertise must be indispensable to the business's potential success.

(2) The woman, minority, or individual owner shall have the ability to perform in the applicant's area of specialty or expertise without substantial reliance upon finances and resources (e.g., equipment, automobiles, facilities, etc.) of businesses that are not eligible for certification.

b. Test of independence. Recognition of the applicant as a separate and distinct entity by governmental taxing authorities shall not be a sole determinant of any applicant's assertions of independence. Test criteria include the following:

(1) Applicant's use of employees, equipment, expertise, facilities, etc., "shared" with or obtained from a company not eligible for certification.

(2) Financial transactions, such as accounts receivable, accounts payable, billing, order processing, are performed by a business that is not eligible for certification.

(3) Applicant's relationship with a business that is not eligible for certification that involves any long-term contract or lease agreements.

(4) Applicant's status as a party to any contract or lease agreement on terms at variance with industry standards or prudent business practices.

(5) Interlocking ownership of the applicant and a business not eligible for certification in the same industry.

(6) Common directors, officers, or members between the applicant and a business not eligible for certification.

(7) Receipt by the business not eligible for certification of financial benefits (i.e., profits, wages, etc.) that are not commensurate with the duties performed.

(8) Dependence on licenses, permits, insurance, or all three held by a business not eligible for certification in order to operate; failure to possess all legal requirements necessary to legally conduct business.

c. An agent, broker, dealer, or manufacturer's representative, unless it is the standard for the industry, generally does not qualify for certification.

d. A business that adds no material value or does not perform a commercially useful function in the provision of the products or services being supplied; has no ownership, financial responsibility, or legal liability; or does not possess or handle the item being procured with its own employees, equipment, or facilities generally does not qualify for certification, unless the business structure is the standard in the industry.

Statutory Authority

§ 2.2-1606 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 32, Issue 25, eff. August 8, 2016.

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