You may have now heard, as of October 1, 2018, the VA has adopted the SBA’s regulations on SDVOSB and VOSB eligibility under 13 C.F.R. § 125. This change avoids conflicts between the VA and SBA programs for SDVOSBs and VOSBs. This is a welcomed change since most companies are involved in both programs. What does this mean to you?
You may want to revisit your operating agreement or bylaws, as the case may be. The VA will no longer find that lack of control exists where a service-disabled veteran does not have the unilateral power and authority to make decisions in “extraordinary circumstances.” Under 13 CFR § 125.11, the term “extraordinary circumstances” is defined as:
1. Adding a new equity stakeholder;
2. Dissolution of the company;
3. Sale of the company;
4. The merger of the company; and
5. Company declaring bankruptcy.
In other words, a company’s bylaws or operating agreement can be amended so that the service disabled veteran does not have the unilateral right to do any of the five (5) acts listed above. The logic is that these decisions are considered “extraordinary” and it therefore makes reasonable business sense that all shareholders or members (or a super majority) have a vote in such a decision. This will also encourage outside investors to invest in an SDVOSB or VOSB if the service disabled veteran cannot do any of the five (5) acts without their say.
This regulation does not mean that the service disabled veteran cannot have unilateral control over extraordinary circumstances. That is still acceptable. Rather, the new regulation provides another option.
It is also worth noting that under 13 C.F.R. § 125.13(l), there is now a “rebuttable presumption” that the service disabled veteran does not control his company if he or she does not live near company headquarters or job site:
There is rebuttable presumption that a service-disabled veteran does not control the firm if that individual is not located within a reasonable commute to firm’s headquarters and/or job-sites locations, regardless of the firm’s industry. The service disabled veteran’s ability to answer emails, communicate by telephone, or to communicate at a distance by other technological means, while delegating the responsibility of managing the concern to others is not by itself a reasonable rebuttal.
The above regulation is designed to avoid a situation where the service disabled veteran does not regularly visit company headquarters, but claims he or she controls the company remotely by emails and other technological means. I suppose that can be true — after all in today’s day and age many people telecommute to work from home. It will be interesting to see how far CVE applies this rebuttable presumption. For now, the best bet is to ensure that the service disabled veteran resides near company’s headquarters or an active and major job site.
This blog is for educational purposes only and does not constitute legal advice. Using this blog does not create an attorney-client relationship between you and the author or Manfredonia Law Offices, LLC. The information provided on this blog is not guaranteed to be complete, correct or up-to-date.
