Court Ruling Makes SBA Qualification More Difficult for ESOP Companies
Executive Director
The United States Court of Federal Claims supported an interpretation of stock ownership requirements by the Small Business Administration that resulted in an ESOP company losing its status as a service-disabled veteran-owned (SDVO) small business. The ruling could affect other SBA qualifications, such as women-owned businesses and participants in the 8(a) business development program.
In the case, the service-disabled veteran owned a majority of series A shares. The veteran, however, did not own any series B shares, which were held by an ESOP. The two series had equal voting rights, but different rights and requirements. The SBA argued, and the court agreed, that the two series were different classes of stock, which meant that the company failed the requirement for a service-disabled veteran to own a majority of all classes of stock.
The NCEO is working on a project to catalog existing preference programs, their requirements, and how they interact with employee ownership. Contact Tim Garbinsky ([email protected]; 510-208-1310).