To Certify or Not To Certify as a Woman or Minority Owned Business

by | February 6, 2015

Blog written by Michelle Bomberger, Equinox Business Law Group

At Equinox, we work with many businesses that are owned by women, minorities, and veterans; and over the years, I’ve been surprised at the different responses to the idea of applying for certification.  Many who qualify desire this designation creates opportunities to grow their businesses that they may not otherwise access.  For some, though, the designation is off-putting because it suggests a need for assistance that they believe they don’t need to be successful and don’t want to have associated with their businesses.

The real question is whether there are opportunities in your industry that you may benefit from by obtaining the certification.   Due to government incentives, many companies set aside a percentage of projects that may only be awarded to companies with a certification as women or minority owned.   If your primary clients are government entities or large companies, the designation could be beneficial.

I can understand how women and minority owned companies in certain industries take pride in their successes without the assistance of a certification and feel they either appear weaker if they have such a certification or believe they aren’t “disadvantaged” and shouldn’t qualify.  I was struck a few years ago at the finalists’ breakfast for the Women Business Owners’ Nellie Cashman Woman Business Owner of the Year Award by a statement Jill McCallum, President of Pacific Rim Aerospace made.  She said that she hesitated to apply for the award because she didn’t think of herself as any different than other business owners.  The fact that she happens to be a woman isn’t relevant and she didn’t want that to be highlighted as a factor in her success.  She won the Nellie Award that year and is a role model for any business owner.  Because of this, her story  —  the fact that she’s a woman and has been incredibly successful in a male dominated industry – is visible and inspiring to women and minorities. Nonetheless, she brings forward an important perspective — owners must weigh how any opportunities could help them to expand their business, build their brand and provide jobs against their personal feelings of being deemed “disadvantaged”.

The process of obtaining and maintaining certification can be time consuming and challenging.  There are opportunists who know there are unique opportunities available under this umbrella and seek to obtain the certification, qualified or not, which enhances the scrutiny placed on the application – and even any renewal or recertification.  In recent years, we encountered two companies that had been certified for years yet were scrutinized heavily in their renewal documents.   The first was a business that is 100% woman owned.  The husband was listed as an attendee at the Board meeting.  He does not sit on the Board or hold any position in the company.  The fact that he was listed as an attendee raised questions in the renewal process and required additional documentation and clarification of his role to obtain the renewal.

Businesses that are owned by a married couple must prove that the wife is the owner and decision maker.  To accomplish this, a business must show that the husband is not involved in the business in any way; or if he is involved, he has no decision making authority.  Often, we have clients who have set up businesses with 51% ownership by the wife to achieve certification.  This split doesn’t satisfy the requirement in a community property state since the spouse is deemed to have rights to 50% of the other spouse’s assets.  A transfer of the assets to separate property of the woman is required to satisfy the certification requirements.   Similarly, the wife must hold the decision making roles in the company, including key officer and Board roles.

The second challenging renewal was a business jointly owned by a husband and wife.  The wife held a significant majority of ownership which had been acquired from her parents as separate property.   As part of the acquisition and later merger, the husband was given a board seat and officer role.  In addition, though, the woman’s net worth exceeded the threshold for certification.  Because the intent of the certification is to assist disadvantaged companies, the net worth threshold is an important part of the process.  In this case, the company decided not to pursue the renewal.

The certification serves a purpose to assist those who have historically been disadvantaged in obtaining contracts and many opportunities exist for companies that obtain the certification.  Before applying, be sure you understand the requirements and have all your documentation in order to support your application.  Once it is submitted, your statements and documents are a record that will be difficult to modify if the application is rejected.