TIPS ON OBTAINING DBE CERTIFICATION FOR WOMEN-OWNED BUSINESSES
Over the last few years we have received scores of calls and have been retained by numerous women business owners attempting to certify their firms as Disadvantaged Business Enterprises (DBE) or Airport Concessions Disadvantaged Business Enterprises (ACDBE). Often these firms are either facing difficulties attempting to get certified or have been decertified for a number of reasons.
In our experience, the most common reason for the denial or decertification of women owned businesses is the involvement of non-economically disadvantaged individuals in the business as owners, managers or other high-level positions. Often these non-economically disadvantaged individuals are the husbands of the female owner, or high level, male employees or qualifiers for the business. If a male individual is involved in the business, the reasons cited for denial can be lack of independence, control or ownership. This is often disconcerting for the woman owner because she often controls the day-to-day operations, the managerial and bookkeeping aspects of the business. However, control of those aspects of the business alone is not enough to show ownership, control and independence as defined by the Department of Transportation (DOT).
The regulations governing the DBE program specifically state that non-disadvantaged individuals can be involved in the business. Unfortunately, what the regulations state and how the rules are interpreted and enforced can be very different. The following are 10 tips for the woman business owner on how to obtain and keep your DBE certification.
Know your business. Knowing your business means having the technical expertise and knowledge to run your business. If, for example, you own a construction company, you will be expected to have the licenses, educational background and job history to actually run the business. Hiring personnel with the requisite expertise is not enough, especially if those key employees are men. You must be able to show that you can perform the work yourself. One key requirement that often trips up women business owners is allowing others to handle estimating and bidding functions. Handing these key functions overt to a male employee or owner is an almost guaranteed way to have your firm’s certification denied.
Own your business. Owning your business means showing the certifying agency that you, in fact, own your business. Borrowing money to start your business from a non-economically disadvantaged individual, subcontracting with only one male-owned company, and being a party to overly restrictive agreements are all reasons for your firm to be denied. The example we see most are firms that were once wholly owned by men, which become women owned by various devices. Firms in this category must be especially prudent in documenting how the woman owner came to own a controlling share of the company.
Know the difference between “family owned” and “woman owned”. The DBE regulations provide that if a certifying agency can’t tell if a business is owned and controlled by its female owner or her family, that firm can be classified a “family owned business” and be denied DBE certification. The prime example we see are companies owned jointly by husbands and wives. Even if the wife in such a company owns 51% of the company, the firm can be denied certification if the wife fails to meet certain criteria such as having technical expertise, knowledge of the business, control of finances and other decision making processes.
Control the finances of your businesses. We have seen women owned business decertified or denied certification simply because a male employee or owner has unrestricted access to a firm’s bank accounts. As the owner of the company, the woman business owner must have full control of the company’s finances. If you must share signatory power on bank accounts with male employees or owners limit their signatory power. Banks will allow you to limit signatory power to a certain dollar amount, number of checks or other limitations. Having these limitations in place can assist you in obtaining your DBE certification by showing that you are in control of the firm’s finances.
Pay yourself. The DBE regulations require that the disadvantaged owner “must enjoy the customary incidents of ownership, and share in the risks and profits commensurate with their ownership interests, as demonstrated by the substance, not merely the form, of arrangements.” This has been interpreted to mean that the woman business owner must be the highest paid person in the firm. If the female owner is not the highest paid person, the burden is on her to show why this shouldn’t be held against her. If for some reason, you are not the highest paid person at your firm, be prepared to explain why and have the documents to back up your explanation.
Ensure that your corporate documents reflect control and ownership by a woman. We have seen woman business owners denied DBE certification because they relied on generic forms to create their company. Imagine, for example, a woman owns 51% of a firm and a non-disadvantaged individual owns 49% of the firm. However, the firm is managed by a board of directors consisting of the two owners who each have an equal vote. In that case, the woman owner will not deemed to be in control of the company because both owners have equal control over the company. Generic corporate documents such as bylaws and articles of organization often contain clauses that will guarantee you will be denied DBE certification. It’s imperative that you have an attorney who understands the requirements of the DBE program prepare and or review your corporate documents.
Keep your business independent. Sharing space, equipment or personnel with another firm, especially if the other firm is owned by a non-socially and economically disadvantaged individual, can lead to a denial. We even caution our clients to stay away from home-based business if they are married and their spouse is running his business from the home. Independence also becomes an issue if you only have one source of business, especially if that source of business is owned by a non-socially and economically disadvantaged individual(s). Your company should be self-reliant or you may deal with questions regarding whether your company is truly independent.
Avoid owning more than one company. The DBE regulations require that you devote your time to the DBE certified firm. Owning more than one company, even if that company is inactive, can cause your DBE certification to be denied or delayed. Additionally, your interest in any business other than the DBE firm will count towards your Personal Net Worth. Depending on the number of businesses you own and their value, this could cause you to exceed the Personal Net Worth requirement of $1.32M and cause you to be denied DBE certification.
Avoid full-time employment. Similarly to number 8 above, having a full-time job in a business other than the firm seeking DBE certification can cause your application to be denied. Similarly, being a full-time student can result in your application to being denied.
Don’t engage in fraud. We have seen instances where female employees are asked by their employers to create firms so that the employer can take advantage of the DBE program and other certification programs. Don’t do it! First, it is illegal and can get you into serious trouble. Second, it is relatively easy to spot such companies. Remember, the burden is on the DBE applicant to prove that she meets the requirement of the program. The certifying agency will have access to all sorts of documentation, including your corporate documents, tax returns and other information that can easily show whether your company is legitimate or not.
Hopefully, the tips provided above will assist you as you seek DBE certification for your woman-owned business. If you have any questions or need any assistance, please feel free to call us at (786) 271-6166