OHA affirmed the denial of an application for certification as an SDVOSB. The firm’s shares were held in a family trust. The trustees were the qualifying veteran and his non-veteran wife. Thus, the firm could not prove the company was owned and controlled by a veteran.
VSBC Appeal of Horizon Marketing Inc., SBA No. VSBC-296-A
- SDVOSB Application – The appellant applied for certification as a service-disabled, veteran-owned small business. The SBA denied the application. The SBA noted all the appellant’s shares were owned by a family trust. Thus, it did not appear a majority of shares were owned by a service-disabled veteran. Moreover, SBA found the appellant's bylaws gave a non-veteran negative control over the company.
- Trust Ownership – OHA affirmed the denial of certification. A service-disabled veteran may own shares through a trust. But the qualifying veteran must be the grantor, trustee ,and beneficiary of the trust. Here, the qualifying veteran and his non-veteran wife were trustees. Thus, the trust was not completely controlled by a qualifying veteran.
- Negative Control – The appellant's bylaws required a majority of directors to establish a quorum. But the appellant only had two directors, the qualifying veteran and his wife. Thus, SBA concluded the wife could exert negative control by denying a quorum. On appeal, the appellant argued this negative control was illusory—as the majority shareholder the qualifying veteran could remove his wife from the board. OHA rejected the argument. Due to the trust, it was unclear the qualifying veteran was a majority owner. What’s more, it was unclear the bylaws allowed the veteran to unilaterally remove his wife.
The appellant is represented by Kyle L. Johnson, of Johnson & Black, LLP
--Case summary by Craig LaChance, Senior Editor