SDVOSB disqualified by stock ownership

The U.S. Court of Federal Claims recently took a strict view of stock ownership requirements for a service-disabled veteran-owned small business (SDVOSB) federal contractor that may have broad implications for other small vendors.

The court agreed with the Small Business Administration’s finding that Precise Systems Inc. did not satisfy the ownership requirements of 13 CFR 125.9(d).

Under the court’s interpretation, a service-disabled veteran owner must own 51% of all aggregate stock and at least 51% of each class of voting stock, according to an analysis by Venable LLP.

In the Precise Systems case, the veteran owned 51% of the Class A common stock but none of the Class B convertible preferred stock, which was owned by employees of the company.

“Companies should be aware that issuance of more than one class or series of stock could affect whether they meet the ‘ownership’ requirements for purposes of small business contracting program eligibility,” Venable said in its analysis.

Furthermore, the decision also may affect 8(a) and Women-Owned Small Business program participants, who have similar stock ownership requirements, Venable said in its report.

More information: Venable report https://goo.gl/SA0z0Q

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