[Code of Federal Regulations]
[Title 13, Volume 1]
[Revised as of January 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 13CFR121.103]
[Page 283-285]
TITLE 13--BUSINESS CREDIT AND ASSISTANCE
CHAPTER I--SMALL BUSINESS ADMINISTRATION
PART 121_SMALL BUSINESS SIZE REGULATIONS--Table of Contents
Subpart A_Size Eligibility Provisions and Standards
Sec. 121.103 What is affiliation?
(a) General Principles of Affiliation. (1) Concerns are affiliates
of each other when one concern controls or has the power to control the
other, or a third party or parties controls or has the power to control
both.
(2) SBA considers factors such as ownership, management, previous
relationships with or ties to another concern, and contractual
relationships, in determining whether affiliation exists.
(3) Individuals or firms that have identical or substantially
identical business or economic interests, such as family members,
persons with common investments, or firms that are economically
dependent through contractual or other relationships, may be treated as
one party with such interests aggregated.
(4) SBA counts the receipts or employees of the concern whose size
is at issue and those of all its domestic and foreign affiliates,
regardless of whether the affiliates are organized for profit, in
determining the concern's size.
(b) Exclusion from affiliation coverage. (1) Business concerns owned
in whole or substantial part by investment companies licensed, or
development companies qualifying, under the Small Business Investment
Act of 1958, as amended, are not considered affiliates of such
investment companies or development companies.
(2) Business concerns owned and controlled by Indian Tribes, Alaska
Regional or Village Corporations organized pursuant to the Alaska Native
Claims Settlement Act (43 U.S.C. 1601), Native Hawaiian Organizations,
or Community Development Corporations authorized by 42 U.S.C. 9805 are
not considered affiliates of such entities, or
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with other concerns owned by these entities solely because of their
common ownership.
(3) Business concerns which are part of an SBA approved pool of
concerns for a joint program of research and development as authorized
by the Small Business Act are not affiliates of one another because of
the pool.
(4) Business concerns which lease employees from concerns primarily
engaged in leasing employees to other businesses or which enter into a
co-employer arrangement with a Professional Employer Organization (PEO)
are not affiliated with the leasing company or PEO solely on the basis
of a leasing agreement.
(5) For financial, management or technical assistance under the
Small Business Investment Act of 1958, as amended, (an applicant is not
affiliated with the investors listed in paragraphs (b)(5) (i) through
(vi) of this section.
(i) Venture capital operating companies, as defined in the U.S.
Department of Labor regulations found at 29 CFR 2510.3-101(d);
(ii) Employee benefit or pension plans established and maintained by
the Federal government or any state, or their political subdivisions, or
any agency or instrumentality thereof, for the benefit of employees;
(iii) Employee benefit or pension plans within the meaning of the
Employee Retirement Income Security Act of 1974, as amended (29 U.S.C.
1001, et seq.);
(iv) Charitable trusts, foundations, endowments, or similar
organizations exempt from Federal income taxation under section 501(c)
of the Internal Revenue Code of 1986, as amended (26 U.S.C. 501(c));
(v) Investment companies registered under the Investment Company Act
of 1940, as amended (1940 Act) (15 U.S.C. 80a-1, et seq.); and
(vi) Investment companies, as defined under the 1940 Act, which are
not registered under the 1940 Act because they are beneficially owned by
less than 100 persons, if the company's sales literature or
organizational documents indicate that its principal purpose is
investment in securities rather than the operation of commercial
enterprises.
(6) A protege firm is not an affiliate of a mentor firm solely
because the protege firm receives assistance from the mentor firm under
Federal Mentor-Protege programs.
(c) Affiliation based on stock ownership. (1) A person is an
affiliate of a concern if the person owns or controls, or has the power
to control 50 percent or more of its voting stock, or a block of stock
which affords control because it is large compared to other outstanding
blocks of stock.
(2) If two or more persons each owns, controls or has the power to
control less than 50 percent of the voting stock of a concern, with
minority holdings that are equal or approximately equal in size, but the
aggregate of these minority holdings is large as compared with any other
stock holding, each such person is presumed to be an affiliate of the
concern.
(d) Affiliation arising under stock options, convertible debentures,
and agreements to merge. Since stock options, convertible debentures,
and agreements to merge (including agreements in principle) affect the
power to control a concern, SBA treats them as though the rights granted
have been exercised (except that an affiliate cannot use them to appear
to terminate control over another concern before it actually does so).
SBA gives present effect to an agreement to merge or sell stock whether
such agreement is unconditional, conditional, or finalized but
unexecuted. Agreements to open or continue negotiations towards the
possibility of a merger or a sale of stock at some later date are not
considered ``agreements in principle'' and, thus, are not given present
effect.
(e) Affiliation based on common management. Affiliation arises where
one or more officers, directors or general partners controls the board
of directors and/or the management of another concern.
(f) Affiliation based on joint venture arrangements. (1) Parties to
a joint venture are affiliates if any one of them seeks SBA financial
assistance for use in connection with the joint venture.
(2) Except as provided in paragraph (f)(3) of this section, concerns
submitting offers on a particular procurement or property sale as joint
venturers are
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affiliated with each other with regard to the performance of that
contract.
(3) Exclusion from affiliation. (i) A joint venture or teaming
arrangement of two or more business concerns may submit an offer as a
small business for a Federal procurement without regard to affiliation
under this paragraph (f) so long as each concern is small under the size
standard corresponding to the NAICS code assigned to the contract,
provided:
(A) The procurement qualifies as a ``bundled'' requirement, at any
dollar value, within the meaning of Sec. 125.2(d)(1)(i) of this
chapter; or
(B) The procurement is other than a ``bundled'' requirement within
the meaning of Sec. 125.2(d)(1)(i) of this chapter, and:
(1) For a procurement having a revenue-based size standard, the
dollar value of the procurement, including options, exceeds half the
size standard corresponding to the NAICS code assigned to the contract;
or
(2) For a procurement having an employee-based size standard, the
dollar value of the procurement, including options, exceeds $10 million.
(ii) A joint venture or teaming arrangement of at least one 8(a)
Participant and one or more other business concerns may submit an offer
for a competitive 8(a) procurement without regard to affiliation under
paragraph (f) of this section so long as the requirements of 13 CFR
124.513(b)(1) are met.
(iii) Two firms approved by SBA to be a mentor and protege under 13
CFR 124.520 may joint venture as a small business for any Federal
Government procurement, provided the protege qualifies as small for the
size standard corresponding to the NAICS code assigned to the
procurement and, for purposes of 8(a) sole source requirements, has not
reached the dollar limit set forth in 13 CFR 124.519.
(4) A contractor and subcontractor are treated as joint venturers if
the ostensible subcontractor will perform primary and vital requirements
of a contract or if the prime contractor is unusually reliant upon the
ostensible subcontractor. All requirements of the contract are
considered in reviewing such relationship, including contract
management, technical responsibilities, and the percentage of
subcontracted work.
(5) For size purposes, a concern must include in its revenues its
proportionate share of joint venture receipts.
(g) Affiliation based on franchise and license agreements. The
restraints imposed on a franchisee or licensee by its franchise or
license agreement relating to standardized quality, advertising,
accounting format and other similar provisions, generally will not be
considered in determining whether the franchisor or licensor is
affiliated with the franchisee or licensee provided the franchisee or
licensee has the right to profit from its efforts and bears the risk of
loss commensurate with ownership. Affiliation may arise, however,
through other means, such as common ownership, common management or
excessive restrictions upon the sale of the franchise interest.
[61 FR 3286, Jan. 31, 1996, as amended at 62 FR 26381, May 14, 1997; 63
FR 35738, June 30, 1998; 64 FR 57370, Oct. 25, 1999; 65 FR 30840, May
15, 2000; 65 FR 35812, June 6, 2000; 65 FR 45833, July 26, 2000]