ROBS and WOB

What is a Women owned Business (WOB)? Does a Rollover Business Startups (ROBS) funding structure allow someone to claim WOB status?

Women Owned Business

Women Owned Business

ROBS History with Women Owned Business certification

When I started working with ROBS setups in 2005, several clients were able to get their businesses certified as WOB. Some did not care about certification. They just created a logo, like the one above, and displayed it in their business or on their website. Other clients wanted an independent certification either for the publicity or because the nature of their business included contracts with State or Federal agencies where such certification gave them an edge in the contract award process. At the time, local, State and Federal certification programs used varying definitions of “women owned”.

Some programs allowed the stock owned by the plan to be attributed to the employee whose funds made the purchase. A female client investing her qualified funds above the required minimum could receive certification. In other programs, Plan ownership would not count as “woman owned business” no matter whose funds participated. Such programs would not certify the business as WOB.

The bottom line, then and now, is to know who you want to be certified by and what their criteria is for determining ownership.

Federal Certification As A Women Owned Business

I am aware of four national certification programs:

Each of these certifications uses the same definition of woman owned business. What is that definition? I am glad you asked!

Federal Requirements For Certification As A Women Owned Business

The federal requirements are found in the Code of Federal Regulations (CFR). Based on your knowledge of ROBS setups, which one of these requirements do you think is the issue?

§ 127.201 What are the requirements for ownership of an EDWOSB and WOSB?

  • (a) General. To qualify as an EDWOSB one or more economically disadvantaged women must unconditionally and directly own at least 51 percent of the concern. To qualify as a WOSB, one or more women must unconditionally and directly own at least 51 percent of the concern. Ownership will be determined without regard to community property laws.
  • (b) Requirement for unconditional ownership. To be considered unconditional, the ownership must not be subject to any conditions, executory agreements, voting trusts, or other arrangements that cause or potentially cause ownership benefits to go to another. The pledge or encumbrance of stock or other ownership interest as collateral, including seller-financed transactions, does not affect the unconditional nature of ownership if the terms follow normal commercial practices and the owner retains control absent violations of the terms.
  • (c) Requirement for direct ownership. To be considered direct, the qualifying women must own 51 percent of the concern directly. The 51 percent ownership may not be through another business entity or a trust (including employee stock ownership plan) that is, in turn, owned and controlled by one or more women or economically disadvantaged women. However, ownership by a trust, such as a living trust, may be treated as the functional equivalent of ownership by a woman or economically disadvantaged woman where the trust is revocable, and the woman is the grantor, the trustee, and the sole current beneficiary of the trust.
  • (d) Ownership of a partnership. In the case of a concern that is a partnership, at least 51 percent of each class of partnership interest must be unconditionally owned by one or more women or in the case of an EDWOSB, economically disadvantaged women. The ownership must be reflected in the concern’s partnership agreement. For purposes of this requirement, general and limited partnership interests are considered different classes of partnership interest
  • (e) Ownership of a limited liability company. In the case of a concern that is a limited liability company, at least 51 percent of each class of member interest must be unconditionally owned by one or more women or in the case of an EDWOSB, economically disadvantaged women.
  • (f) Ownership of a corporation. In the case of a concern that is a corporation, at least 51 percent of each class of voting stock outstanding and 51 percent of the aggregate of all stock outstanding must be unconditionally owned by one or more women, or in the case of an EDWOSB, economically disadvantaged women. In determining unconditional ownership of the concern, any unexercised stock options or similar agreements held by a woman will be disregarded. However, any unexercised stock option or other agreement, including the right to convert non-voting stock or debentures into voting stock, held by any other individual or entity will be treated as having been exercised.

If you answered (c), you get a gold star! The plan is not considered “direct ownership”. Why not? I don’t know. I believe that a female client, investing her own qualified funds through a 401K plan, investing some of her own capital voting 100% of the company stock, acting as the only person on the board of directors, fulfilling all of the company officer positions, SHOULD be certified as a woman owned business.

Yet, I have clients turned down because of (c). A 401K plan is a type of a trust. It is different that an ESOP (employee stock ownership plan) but similar enough that it gets lopped in even if only women are involved. The bottom line is that if you use a ROBS setup AND you want federal certification as a women owned business, you are not likely to succeed.

Other Certification As A Women Owned Business

There is a plethora of community and State women owned business certification programs. Your local chamber of commerce might have one, a women’s business association, a trade association. How do you know whether you can be certified as a women owned business under their rules? Just ask. Explain to them how you own the company and see what they say.

  1. you have a corporation
  2. you own X% of the stock personally
  3. your 401K plan owns Y% using your qualified funds. You vote the stock owned by the plan.

Some of our clients are successful. It just depends on the program you want to certify you. I do not maintain a list of State or local certification programs.

Top ROBS | WOB Questions To Ask Yourself

  1. Why do you want WOB certification?
    • Federal contracts
    • State contracts
    • Networking
    • Local publicity
    • Other reasons I haven’t thought of because I am not a W
  2. Who offers certification that helps you accomplish this WHY?
  3. If you can’t get certified with a ROBS funded strategy, do you want to proceed without it or find a different way to fund your company?

If I can help call, email or set up a phone consult.

By | 2017-12-06T10:43:24+00:00 December 6th, 2017|Rollover Business Startup|