THE FINE PRINT — Can female or minority business certification help my business?

September 29, 2014

By Jan Pierce

janpierceMinority and female business certifications came about as a direct and necessary result of government programs designed to give preferences to minority and female owned businesses. The policy goals were laudable — to encourage the growth of businesses owned by individuals who traditionally face higher barriers of entry into the marketplace. Unfortunately, it opened a can of worms — how to determine if businesses were really owned and operated by women or minorities. It is not that unusual for a business that is owned and operated by a man or non-minority to transfer all or a portion of the owner’s interest to someone who qualifies, in an attempt to certify that business is minority or woman-owned.

Especially in economic downturns, companies seek to maximize every advantage to preserve income. A great example was what happened during the last recession in the construction industry. Cities, counties, and states were some of the only entities with the financial ability to start new projects. All of a sudden, minority or female businesses had a distinct advantage in that market. Non-female and non-minority companies went to great lengths to create sham companies to compete for contracts earmarked for those companies.

Over the years, various governmental or private entities have created different methods to verify that businesses are actually owned and operated by women or minorities. In Wisconsin, cities, counties, and the state each have programs that certify companies who do work for them. In addition, there are a couple of private companies that do the same for large corporations that want to show the federal government that they are spending a significant amount of their contracting dollars on female and minority contractors or suppliers.

Whether or not certification will help your business depends on whether you supply a product or service that a city, county, or state needs. The construction industry is a big player in this area. Large corporations like Johnson Controls and Harley-Davidson give preference to female or minority vendors of everything from information technology to law. If you have a product or service that is in demand by these entities, there is no doubt that certification will give you a leg up on the competition. But if there isn’t a demand for your product or service, getting certified won’t make a difference.

Certification is based primarily on two criteria — ownership and control. Ownership is fairly straightforward and is determined based on the percentage of shares owned. As long as the female or minority shareholder owns 51% or more of the company, it qualifies. But that’s not enough. That owner must also be actively involved with, and in control of the business. This is often demonstrated by the owner’s qualifications and actual involvement in day-to-day operations. Resumes are reviewed and site visits are made.

If you are a woman or minority-owned business, certification is definitely worth looking into. If you haven’t started your company yet, you should take special care to make sure that it’s done correctly, and that your ownership interest is properly represented.

Send your question to jan@janpiercelaw.com. To protect your privacy, your name will not be published. Jan Pierce, S.C. is a law firm In Milwaukee that was founded with the belief that people can make a positive difference in the world and make a profit. The firm’s emphasis is on assisting small businesses and social entrepreneurs in all aspects of launching and managing their ventures. Disclaimer: Advice in this column is general legal information and does not constitute, nor is it intended to be, legal advice.

image_pdfimage_printPrint
Copyright 2016 by Bay View Compass. All rights reserved.
This material may not be published, broadcast, rewritten or redistributed.

Comments

Comment on this Bay View Compass item.