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The Small Business Administration (SBA) recently issued its much-anticipated final rule, which updates and clarifies many regulations that impact small businesses. The revised regulations impact not only small businesses but also firms in preferential procurement programs like the 8(a) Program and individuals and larger businesses that do business with these firms. Of these amendments to the regulations, there are three that loosen ownership restrictions on the minority owners in 8(a) firms and should be welcomed by 8(a) owners and their minority investment partners.

  1. Ownership Percentages Allowed by Non-Disadvantaged Partner Increase:
    • Non-disadvantaged owners’ allowed ownership in 8(a) firms increased:
      • Developmental stage: 20%
      • Transitional stage: 30% (except SBA-approved mentors: 40%)
  2. Broadened Exception to SBA’s Prior Approval for Ownership Changes:
    • SBA increased non-disadvantaged ownership cap from 20% to 30% for changes without SBA prior approval.
    • A new exception added: if the 8(a) firm has never received an 8(a) contract and the disadvantaged owner maintains over 50%.
  3. Minority Owners Get More Rights:
    • Defined 7 extraordinary circumstances where minority owners can block firm actions.
    • Adds protections without impeding majority control.
  4. These Amendments Help 8(a) Owners and Investors:
    • Easier investment in 8(a) companies.
    • Streamlined ownership change processes.
    • Greater investment opportunities due to less risky investments for minority shareholders.

These changes facilitate growth, investment, and smoother transitions for 8(a) firms.

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