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Process and Requirements of Women-Owned Small Business Certification

Women Business OwnerThe federal government, states, and some cities set aside a percentage of funding to help women-owned businesses. In fact, in 2021, the federal government set aside 5% of its annual spending for businesses that obtained a Small Business Association (“SBA”) Women-Owned Certification (WOSB).

There are many types of women-owned small business certifications. There is a federal certification that can be applied for directly with the SBA or another certifying agency that the SBA works with. Various certifications can be applied for at the state, county, and even city levels as well. There are also accredited third-party certifiers that will review applications following the federal or state requirements.

The two main requirements that must be met to obtain a women-owned small business certification are the following:

  1. The business seeking certification is a small business (as defined by the SBA) and;
  2. The business is woman-owned and operated.

What is Considered a Small Business?

To get started, first you have to define what it means to be a small business. Most people would be surprised to learn that a small business is not defined as a company with only a few employees making a marginal profit, but rather it is a company of up to 500 employees with up to $750 million in annual receipts. The annual receipt value is different for each industry, but $750 million is a common baseline for this evaluation.

Under the federal women-owned small business certification, the company must be headquartered in the United States. State-level certifications may require that additional metrics be met, though. For example, some states will required that a business be organized in a specific state or may require that the business has been operating for a number of years in the state.

What does “Women-Owned Business” mean?

If you meet the “small business” requirement above, you must then evaluate whether your business meets the women-owned requirement. At first glance, the question of “What is a women-owned business?” might seem to have a simple answer. However, under the federal women-owned small business certification regulations, the answer is more complex. A women-owned business is a business that is owned and operated by a majority of women. This means that at least 51% of the company is unconditionally and directly owned by women who are U.S. citizens.

Under the requirements, there can be no LLC, partnership, or trust that holds ownership in the company, even if women own those other legal entities. The definition also contemplates that there are no extraneous deals outside the operating agreement. For example, an outside arrangement whereby on paper a woman owner owns 51%, but she has agreed to let her husband control the business is not permissible and would likely invalidate the business as “women-owned.”

The company must also be controlled and managed by women and the day-to-day operations must be done by women. For this standard to be met, a woman must occupy the highest officer position in the company and make the most money in the business. This does not mean that the qualifying woman must do everything in the business (accounting, human resources, payroll, etc.), but it does mean that she must have the knowledge and experience to do those tasks if necessary. This analysis becomes more problematic and complex when a male owner holds a license required for the business. Under this circumstance, the qualifying entity will do a fact-based analysis and possibly look at whether the woman’s background and experience can supplement the fact that she does not have the required license. This analysis comes into play in fields where specialized license are required to carry on certain businesses.

Additionally, the qualifying woman must manage the business full-time and devote her full attention to business concerns during normal working hours. This requirement can be met so long as the qualifying woman holds the highest officer position and is not engaged in any outside employment that prevents her from devoting adequate time and attention to her role and the company.

Once you have determined that your business meets the criteria for a small, woman-owned business, the next step is applying for the certification.

WOSB Application Process

Before 2020, the application process for a small business certification was straightforward. A business owner could go to the SBA website, complete a checklist, and self-certify that they were a small business, majority-owned by women and that the business was controlled by women. After completing the checklist, the business owner would get a piece of paper certifying that they are a women-owned business. This process was unfortunately abused, and in 2020, the SBA revamped the program to include a formal application process and review by the SBA. During the review process, the SBA takes a deep dive into the business, who owns it, who operates it, how did the qualifying woman get her ownership, and who is the mastermind behind the strategy for the company.

Through the revised application and certification process, the SBA will ask for various documents based on the information in each company’s application. There is some basic general documentation that will be requested such as: (1) tax returns, (2) articles of incorporation, or bylaws depending on whether the company is an LLC or a corporation, (3) bank statement, (4) capitalization tables, and other business records meant to show how the woman came to own a majority of the business.

The SBA will also ask for business records from the time that the business started, to the time of application or personal tax returns instead of business tax returns. They are going to get into the nitty-gritty, wanting to know all about the individuals with a financial interest in the company and each owner’s role. The review process can take some time, and applicants should be aware that follow-up documentation may be requested. Follow-up documentation requests are not out of the ordinary.

Before submitting, the applicant should be aware of any flags that might be present and what information may be requested as a result of those flags. For example, having women and men with an ownership interest in the company, the SBA is going to want to know the roles of the men and what their investment in the company is and may do a deeper dive into what the roles of the males in the company are. It may be helpful to have an attorney look at the application and document prior to submittal to determine the best course of action and whether submittal directly to the SBA or other associated agencies is prudent.

Firm Review

Having the experienced counsel of a law firm that specializes in these types of certification reviews will also help in determining if there are other state or local certifications which may be available. A review prior to application submittal will also be helpful in identifying any flags that may be present in the application. If there are any flags present, an attorney familiar with this area of law can advise the applicant on how to provide the correct documentation and further course of action. This may reduce the agency review time and also increases the likelihood of having the women-owned certification awarded to your business.

If you have further questions about the process and requirements of women-owned small business certification, please contact Amanda Dernovshek at 517.371.8259 or adernovshek@fosterswift.com.

Categories: Compliance, Startup

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