Many small businesses begin as or grow into a “family business” where multiple members of the same family own or play important roles in the company. A small business where individuals that are considered socially and economically disadvantaged own at least 51% of the business and control the management and daily business operations of the business may qualify for Disadvantaged Business Enterprise (DBE) certification. However, your family business may face additional scrutiny if it applies for DBE certification.
If a socially and economically disadvantaged individual owns and controls a company, their immediate family members (who are not socially and economically disadvantaged) are not precluded from participating in the company for DBE purposes. Under the regulations, 49 C.F.R. § 26.71(k), those family members can be managers, employees or even owners.
However, the certification process will focus on the role the socially and economically disadvantaged (“SED”) owner plays versus the other family members. If the certifier cannot determine that the SED owner controls the firm as distinct from the family as a whole, then the company will not be certified. 49 C.F.R. § 26.71(k)(2).
The United States Department of Transportation hears appeals on denials of DBE certifications. Here are two examples of their decisions on this topic:
If family members are involved in your business, and you wish to seek DBE certification, the company must be able to demonstrate that the SED owner actually controls the business, and not the family unit. Obtaining the assistance of lawyer that is knowledgeable in this area can help the business put forward its best case for certification.