Welcome to the fourth post in our MWBE series. We’ve already covered some of the certification criteria – we’ve discussed ownership and operations so far this month.
Today, we’ll be discussing the next criteria a company must meet to obtain New York’s Minority or Woman Business Enterprise (MWBE) certification. The criteria – or standard – is called control of the business.
Stated differently, the State Division of Minority and Women’s Business Development asks:
Does the woman (or minority) owner have real, meaningful control of the operations?
Under New York’s regulations, the owner must exercise:
- Control of business management and
- Control of business negotiations.
What exactly do you and your company need to prove to satisfy these two requirements?
Control of Business Management
The regulations that identify the criteria for MWBE status state:
“A minority group member or woman relied upon for certification must be the highest-ranking officer of the business enterprise for which certification is sought, and, where applicable, control the board of directors or serve as a general partner.”
Put simply, the Division will deny certification to a company where the minority group member or woman isn’t the chief executive officer, president, or can’t make decisions without approval from the board of directors, if the company has a board. If a majority of the board is needed to make any company decisions, the Division interprets this as the applicant’s not having control as required under the regulations.
This issue was seen in Matter of Cyrco Construction Corp., a case where the Division denied MWBE certification because the woman owner was one of two directors on the board, and a majority was required to transact business. The Division concluded that because the woman applicant alone could not conduct business, she didn’t have independent control of the Board. Application for certification denied.
Similarly, the Division generally denies certification to a business where its bylaws indicate that the applicant – again, the woman or minority owner – can’t make decisions without approval from other shareholders. This was the fatal circumstance in Matter of Tri-County Excavating, Inc., where the Division denied certification because the bylaws indicated that the woman applicant couldn’t sell her shares without the consent of other board member and also because the company’s president was a man. Since the woman owner couldn’t make decisions without approval from others and wasn’t the highest-ranking officer, the Division denied certification.
Control of Business Negotiations
The regulations provide that minority or woman owners must:
“negotiate business contracts and represent themselves to clients as the principals”
Essentially, the owner must (1) be the person who negotiates business contracts and (2) be the person whom clients know and understand has complete authority for the business.
The second part – presenting herself as the one in charge – establishes her authority to negotiate and sign contracts. The Division reasons that if customers don’t see the owner as having sufficient authority to negotiate or execute a contract, then she’s not the company’s principal.
She needs to be the top dog in the pack.
The Division repeatedly has concluded that if the owner doesn’t sign the company’s contract, then she’s not exercising control over negotiations. This happened with the certification in Matter of Tri-County Heating, where the company’s submission included contracts signed by the male co-owner.
What a mistake!
If certification is sought by a woman, she’s got to be the one who regularly signs the company’s contracts. Otherwise, she’s viewed as a mere figurehead, and that’ll likely never pass certification muster. In this case, the Division went so far as to state that:
“Women-owners must demonstrate control of negotiations through the production of signed contracts.”
Key Takeaways About The Control Criteria
First, anyone applying for MWBE certification for their business must be the highest-ranking officer of the business. They must be able to – and actually do – make business decisions independent of other board members, if the company has a board. They also must be empowered to make decisions independent of any other owners, whether they’re shareholders in a corporation, members in a limited liability company, or partners in a partnership. Remember, top dogs only.
Second, those seeking certification should be the person who signs any company contracts. When it comes time to apply for the certification, don’t submit contracts signed by others, or it will discredit you and disprove that you’ve got the necessary control.
Of course, this is just one criteria for MWBE certification. It’s not exclusive. Companies applying for certification must meet all the required criteria, so keep all previous and future blog posts in mind when applying for your MWBE certification.
What’s Next?
Yes, there’s more! We want to walk hand-in-hand with you down the path to a strong certification or recertification application. And we know this step-by-step process will help.
Next week, we’ll be discussing the next requirement: independence.
If you’ve got questions in the meantime, reach out to us.
You can connect via our social channels, by email to info@coppolalegal.com, or by calling us at 716.839.9700.
