Minnesota Administrative Rules
Agency 103 - Administration Department
Chapter 1230 - STATE CONTRACTS
SMALL BUSINESS PROCUREMENT PROGRAM
Part 1230.1605 - OPERATING CONTROL
Current through Register Vol. 48, No. 39, March 25, 2024
A. In determining whether qualifying owners control a business, all the facts in the record will be considered and viewed as a whole.
B. Only an independent business may be certified as a socially and economically disadvantaged, economically disadvantaged area, or veteran-owned small business. An independent business is one in which the viability does not depend on its relationship with another business or businesses.
C. A socially and economically disadvantaged, economically disadvantaged area, or veteran-owned small business must not be subject to any formal or informal restrictions that limit the customary discretion of qualifying owners. There must not be any restrictions through corporate charter provisions, bylaw provisions, contracts, or any other formal or informal devices including cumulative voting rights, voting powers attached to different classes of stock, employment contracts, requirements for concurrence by nonqualifying partners, conditions precedent or subsequent, executory agreements, voting trusts, or restrictions on or assignments of voting rights, that prevent qualifying owners, without the cooperation or vote of any nonqualifying individual, from making any business decision of the business. This item does not preclude a spousal cosignature on documents as provided for in part 1230.1604, subpart 10, item B.
D. The qualifying owners must possess the power to direct or cause the direction of the management and policies of the business and to make day-to-day as well as long-term decisions on matters of management, policy, and operations.
E. Nonqualifying individuals or immediate family members may be involved in a socially and economically disadvantaged, economically disadvantaged area, or veteran-owned small business as owners, managers, employees, stockholders, officers, and directors. These individuals must not possess or exercise the power to control the business or be disproportionately responsible for the operation of the business.
F. The qualifying owners of the business may delegate various areas of management and policy making or daily operations of the business to other participants in the business, regardless of whether these participants are qualifying individuals. These delegations of authority must be revocable, and the qualifying owners must retain the power to hire and fire any person to whom such authority is delegated. The managerial role of the qualifying owners in the business's overall affairs must be such that it can be reasonably concluded that the qualifying owners actually exercise control over the business's operations, management, and policy.
G. The qualifying owners must have an overall understanding of, and managerial and technical competence and experience directly related to, the type of business in which the business is engaged and the business's operations. The qualifying owners are not required to have experience or expertise in every critical area of the business's operations, or to have greater experience or expertise in a given field than managers or key employees. The qualifying owners must have the ability to intelligently and critically evaluate information presented by other participants in the business's activities and to use this information to make independent decisions concerning the business's daily operations, management, and policy making. Generally, expertise limited to office management, administration, or bookkeeping functions unrelated to the principal business activities of the business is insufficient to demonstrate control.
H. If Minnesota or local law requires the owners to have a particular license or other credential in order to own or control a certain type of business, then the qualifying individuals who own and control a potential socially and economically disadvantaged or veteran-owned small business of that type must possess the required license or credential. If Minnesota or local law does not require a license or credential to own or control a business, certification will not be denied solely on the grounds that the owner lacks the license or credential. However, the division may take into account the absence of the license or credential as one factor in determining whether the qualifying owners actually control the business.
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J. In order to be viewed as controlling a business, a qualifying individual cannot engage in outside employment or other business interests that conflict with the management of the business or prevent the individual from devoting sufficient time and attention to the affairs of the business to control its activities. Absentee ownership of a business and part-time work in a full-time business are not viewed as constituting control. An individual could be viewed as controlling a part-time business that operates only on evenings and weekends if the individual controls it all the time it is operating.
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L. When a nonqualifying individual who may or may not be an immediate family member , transfers ownership and control of a business to a qualifying individual, and the nonqualifying individual remains involved with the business in any capacity, there is a rebuttable presumption of control by the nonqualifying individual unless the qualifying individual now owning the business demonstrates, by clear and convincing evidence, that:
M. In determining whether a business is controlled by qualifying owners, whether the business owns equipment necessary to perform its work will be considered. Where leasing equipment is a normal industry practice and the lease does not involve a relationship with a prime contractor or other party that compromises the independence of the business, the business may be determined to be controlled by qualifying individuals.
N. A business shall be granted certifications only for specific types of work in which qualifying owners have the ability to control the business. To become certified in an additional type of work, the business must demonstrate that its qualifying owners are able to control the business with respect to that type of work. The qualifying owner's control of the business in the additional type of work must be verified.
O. A business operating under a franchise or license agreement may be certified if it meets the standards in this part and the franchiser or licenser is not affiliated with the franchisee or licensee. In determining whether affiliation exists, restraints relating to standardized quality, advertising, accounting format, and other provisions imposed on the franchisee or licensee by the franchise agreement or license should not be considered, provided that the franchisee or licensee has the right to profit from its efforts and bears the risk of loss commensurate with ownership. Alternatively, even though a franchisee or licensee may not be controlled by virtue of such provisions in the franchise agreement or license, affiliation could arise through other means, such as common management or excessive restrictions on the sale or transfer of the franchise interest or license.
P. In order for a partnership to be controlled by qualifying individuals, any nonqualifying partners must not have the power without the specific written concurrence of the qualifying partner or partners to contractually bind the partnership or subject the partnership to contract or tort liability.
Q. The qualifying individuals controlling a business may use an employee leasing company. The use of such a company does not preclude the qualifying individuals from controlling their businesses if they continue to maintain an employer-employee relationship with the leased employees. This includes being responsible for hiring, firing, training, assigning, and otherwise controlling the on-the-job activities of the employees, as well as ultimate responsibility for wage and tax obligations related to the employees.