eMinutes Blog

What It Takes To Qualify as a Women-Owned Small Business (WOSB)

March 7, 2017

The Small Business Act authorizes certain procurement mechanisms to ensure that Women-Owned Small Businesses (“WOSBs”) have an equal opportunity to participate in federal contracting.[1] The WOSB Federal Contracting Program is implemented through regulations adopted by the U.S. Small Business Administration (“SBA”).[2]

To qualify as a WOSB, a concern must be (1) a “small business,” and (2) at least 51% unconditionally and directly owned and controlled by one or more women who are U.S. citizens.[3] What is a “small business” is determined by the SBA, which adopts size standards based on the type of economic industry, matched to the North American Industry Classification System (“NAICS”).[4] Thus, to qualify as a WOSB with regard to a particular federal contract the concern is seeking, the concern must meet the small business size standard for the primary NAICS code applicable to that contract.

The second part of the test for a WOSB breaks down into ownership and control of the business. With regard to ownership, in general, to qualify as a WOSB, one or more women must “unconditionally and directly own at least 51% of the concern,” whether it takes the form of a corporation, partnership, or limited liability company.[5] Ownership is determined “without regard to community property laws.”[6] To be considered “unconditional,” the women’s ownership must not be subject to any conditions, voting trusts, agreements, or other arrangements that cause or potentially cause ownership benefits to go to another.[7] However, the women may pledge or encumber their ownership interests as collateral, so long as the transaction follows normal commercial practices and the owner retains control absent violations of the terms of the transaction.[8] To be considered “direct,” the women’s 51% ownership may not be through another business entity or a trust (including an employee stock ownership plan), even if the other entity is owned and controlled by women, unless the trust is revocable and the woman is the grantor, the trustee, and the sole current beneficiary of the trust.[9]

With regard to control, in general, to qualify as a WOSB, “the management and daily business operations of the concern must be controlled by one or more women.”[10] In this context, “control” means that “both the long-term decision making and the day-to-day management and administration of the business operations” are conducted by one or more women.[11] In particular, a woman must hold the highest officer position in the concern and must have “managerial experience of the extent and complexity needed to run the concern.”[12] The woman holding the highest officer position must manage the business on a full-time basis during normal working hours.[13] That means that the woman cannot engage in outside employment that prevents her from devoting enough time and attention to controlling the concern’s management and daily business operations.[14] As with ownership, there are additional rules with regard to control based on the specific type of business entity involved. For example, in the case of a limited liability company, one or more women must serve as managing members, with control over the all of the LLC’s decisions.[15] Similarly, in a corporation, one or more women must control the board of directors.[16] None of these rules preclude involvement in the concern by men or other entities as stockholders, partners, or members, as the case may be, so long as the men or other entities do not “exercise actual control or have the power to control the concern.”[17]

In some cases, the benefits available under the WOSB Program may be available only to Economically Disadvantaged Women-Owned Small Businesses (“EDWOSBs”).[18] To qualify as an EDWOSB, the concern must be at least 51% owned by one or more women who are economically disadvantaged.[19] In general, a woman is “economically disadvantaged” if she can demonstrate that “her 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.”[20] In determining economic disadvantage, the SBA does not take into account community property laws when the woman has no direct, individual, or separate ownership interest in the property.[21] In addition to the general test for economic disadvantage, a woman must have a personal net worth of less than $750,000, excluding her ownership interest in the concern and her equity interest in her primary personal residence.[22] The SBA considers a variety of other factors as well.[23]

If a concern meets all of the requirements to be a WOSB or an EDWOSB, then it is eligible to participate in the WOSB Program if the concern is, among other things, registered in the System for Award Management (“SAM”) at the time it submits an offer on a specific government contract.[24] Registration in the SAM, in turn, requires that the concern be certified as a WOSB or EDWOSB.[25] Certification may be provided by an SBA-approved third-party certifier, or by the concern itself in accordance with SBA regulations.[26] Additional information on how to participate in the WOSB Federal Contracting Program is available on the SBA’s website.[27]

[1] 13 C.F.R. § 127.100.

[2] See id. pt. 127.

[3] See 15 U.S.C. § 632(n); 13 C.F.R. § 127.200(b).

[4] See 13 C.F.R. §§ 121.101 (generally), 121.201 (full table of SBA’s small business size standards).

[5] Id. § 127.201(a). There are some rules specific to the type of concern. For example, in determining the ownership of a corporation, at least 51% of each class of outstanding voting stock and 51% of the aggregate of all outstanding stock must be unconditionally owned by one or more women. See id. § 127.201(f).

[6] Id. § 127.201(a).

[7] Id. § 127.201(b).

[8] Id.

[9] Id. § 127.201(c).

[10] Id. § 127.202(a).

[11] Id.

[12] Id. § 127.202(b).

[13] Id. § 127.202(c).

[14] Id.

[15] Id. § 127.202(e).

[16] Id. § 127.202(f).

[17] Id. § 127.202(g).

[18] See id. § 127.101.

[19] Id. § 127.203(a).

[20] Id. In determining a woman’s access to credit and capital, the SBA may consider a spouse’s financial situation under certain circumstances, such as where the spouse has a role in the business (such as officer, employee, or director) or has lent money or provided other financial support to the business. Id. § 127.203(c)(2).

[21] Id. § 127.203(a).

[22] Id. § 127.203(b)(1).

[23] See id. § 127.203(c).

[24] Id. § 127.300(a).

[25] Id. § 127.300(b).

[26] Id. § 127.300(b), (d).

[27] See U.S. Small Business Administration, Contracting: What You Need To Know if You Are a Women Owned Small Business, https://www.sba.gov/contracting/government-contracting-programs/women-owned-small-businesses/what-you-need-know-if-you-are-women-owned-small-business.

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