Affiliates. Business concerns are affiliates of each other
if, directly or indirectly, either one controls or has the power to
control the other, or another concern controls or has the power to
control both. In determining whether affiliation exists, consideration
is given to all appropriate factors including common ownership, common
management, and contractual relationships; provided, that restraints
imposed by a franchise agreement are not considered in determining
whether the franchisor controls or has the power to control the
franchisee, if the franchisee has the right to profit from its effort,
commensurate with ownership, and bears the risk of loss or failure. Any
business entity may be found to be an affiliate, whether or not it is
organized for profit or located inside the United States.
(1) Nature of control. Every business
concern is considered as having one or more parties who directly or
indirectly control or have the power to control it. Control may be
affirmative or negative and it is immaterial whether it is exercised so
long as the power to control exists.
(2) Meaning of “party or parties.” The
term “party” or “parties” includes, but is not limited to, two or more
persons with an identity of interest such as members of the same family
or persons with common investments in more than one concern. In
determining who controls or has the power to control a concern, persons
with an identity of interest may be treated as though they were one
(3) Control through stock ownership.
party is considered to control or have the power to control a concern,
if the party controls or has the power to control 50 percent or more of
the concern’s voting stock.
party is considered to control or have the power to control a concern,
even though the party owns, controls, or has the power to control less
than 50 percent of the concern’s voting stock, if the block of stock
the party owns, controls, or has the power to control is large, as
compared with any other outstanding block of stock. If two or more
parties each owns, controls, or has the power to control, less than 50
percent of the voting stock of a concern, and such minority block is
equal or substantially equal in size, and large as compared with any
other block outstanding, there is a presumption that each such party
controls or has the power to control such concern; however, such
presumption may be rebutted by a showing that such control or power to
control, in fact, does not exist.
a concern’s voting stock is distributed other than as described above,
its management (officers and directors) is deemed to be in control of
(4) Stock options and convertible
debentures. Stock options and convertible debentures exercisable at the
time or within a relatively short time after a size determination and
agreements to merge in the future, are considered as having a present
effect on the power to control the concern. Therefore, in making a size
determination, such options, debentures, and agreements are treated as
though the rights held thereunder had been exercised.
(5) Voting trusts. If the purpose of a
voting trust, or similar agreement, is to separate voting power from
beneficial ownership of voting stock for the purpose of shifting
control of or the power to control a concern in order that such concern
or another concern may qualify as a small business within the size
regulations, such voting trust shall not be considered valid for this
purpose regardless of whether it is or is not valid within the
appropriate jurisdiction. However, if a voting trust is entered into
for a legitimate purpose other than that described above, and it is
valid within the appropriate jurisdiction, it may be considered valid
for the purpose of a size determination, provided such consideration is
determined to be in the best interest of the small business program.
(6) Control through common management. A
concern may be found as controlling or having the power to control
another concern when one or more of the following circumstances are
found to exist, and it is reasonable to conclude that under the
circumstances, such concern is directing or influencing, or has the
power to direct or influence, the operation of such other concern.
Interlocking management. Officers, directors, employees, or principal
stockholders of one concern serve as a working majority of the board of
directors or officers of another concern.
Common facilities. One concern shares common office space and/or
employees and/or other facilities with another concern, particularl y
where such concerns are in the same or related industry or field of
operation, or where such concerns were formerly affiliated.
Newly organized concern. Former officers, directors, principal
stockholders, and/or key employees of one concern organize a new
concern in the same or a related industry or field operation, and serve
as its officers, directors, principal stockholders, and/ore key employees, and one concern is furnishing or will furnish the other
concern with subcontracts, financial or technical assistance, and/or
facilities, whether for a fee or otherwise.
(7) Control through contractual
(i) Definition of
a joint venture for size determination purposes. A joint venture for
size determination purposes is an association of persons or concerns
with interests in any degree or proportion by way of contract, express
or implied, consorting to engage in and carry out a single specific
business venture for joint profit, for which purpose they combine their
efforts, property, money, skill, or knowledge, but not on a continuing
or permanent basis for conducting business generally. A joint venture is viewed as a business entity in determining power to control its
(A) For bundled requirements, apply size
standards for the requirement to individual persons or concerns, not to
the combined assets, of the joint venture.
(B) For other than bundled requirements,
apply size standards for the requirement to individual persons or
concerns, not to the combined assets, of the joint venture, if–
revenue-based size standard applies to the requirement and the
estimated contract value, including options, exceeds one-half the
applicable size standard; or
employee-based size standard applies to the requirement and the
estimated contract value, including options, exceeds $10 million.
Joint venture–acquisition and property sale assistance. Concerns
bidding on a particular acquisition or property sale as joint
ventures are considered as affiliated and controlling or having the
power to control each other with regard to performance of the contract.
Moreover, an ostensible subcontractor which is to perform primary or
vital requirements of a contract may have a controlling role such to be
considered a joint venturer affiliated on the contract with the prime
contractor. A joint venture affiliation finding is limited to
particular contracts unless the SBA size determination finds general
affiliation between the partis.
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