The GovCon Bulletin™
The SBA’s 2022 Proposed Rule Changes - Part 4: 8(a) Eligibility Of Tribally-Owned And NHO-Owned Businesses
8(a) BD Program Eligibility Of Tribally-Owned Small Businesses
The SBA’s regulation at 13 CFR 124.109 sets forth several requirements for a Tribally-owned small business to participate and remain eligible for the SBA’s 8(a) BD program. Among them are requirements in paragraph (c)(1) that the business must be a separate and distinct legal entity organized or chartered by the Tribe, or Federal or state authorities and that the business’ articles of incorporation, partnership agreement or limited liability company articles of organization must contain express sovereign immunity waiver language, or a “sue and be sued” clause which designates United States Federal Courts to be among the courts of competent jurisdiction for all matters relating to SBA's programs.
Under the Proposed Rule, the waiver of sovereign immunity is now required under 13 CFR 124.109(c)(1) only for businesses owned by Federally recognized Indian tribes, since State-recognized tribes are not deemed sovereign and are already subject to suit. Also, businesses organized under tribal law may not have articles of incorporation, partnership agreements or limited liability company articles of organization, so the Proposed Rule adds language allowing Tribally-owned businesses organized under tribal law to waive sovereign immunity in any similar documents authorized under tribal law.
The SBA’s regulation at 13 CFR 124.109 also currently requires a Tribally-owned business to have reasonable prospects for success in competing in the private sector if admitted to the 8(a) BD program. A Tribally-owned applicant can establish potential for success by demonstrating that it has been in business for at least two years, as evidenced by income tax returns for each of the two previous tax years showing operating revenues in the primary industry in which the applicant is seeking 8(a) BD certification.
However, not all Tribally-owned businesses file federal income tax returns. Consequently, the Proposed Rule adds a provision allowing a Tribally-owned applicant to submit financial statements demonstrating that it has been in business for at least two years with operating revenues in the primary industry in which it seeks 8(a) BD certification.
8(a) BD Program Eligibility Of NHO-Owned Businesses
The SBA’s regulations at 13 CFR 124.110(d) require a Native Hawaiian Organization (NHO) to control a small business 8(a) BD applicant or participant. The Proposed Rule adds a new paragraph at (d)(3) clarifying that individuals responsible for the management and daily operations of an NHO-owned business can manage up to two 8(a) BD program participants at the same time. This change aligns the 8(a) BD program eligibility requirements for NHO-owned business with those that apply to small businesses owned by Tribes and Alaska Native Corporations.
The Proposed Rule also adds a new paragraph to 13 CFR 124.110 specifying unconditional ownership requirements for NHO-owned small businesses. Those requirements currently are only a matter of SBA policy.
As amended by the Proposed Rule, the regulation now states that for corporate entities, an NHO must unconditionally own at least 51 percent of the voting stock and at least 51 percent of the aggregate of all classes of stock; for non-corporate entities, an NHO must unconditionally own at least a 51 percent interest.