We’re back with our guide to gaining or recertifying your MWBE status in New York State. We’ve previously talked about the ownership requirement, the operation requirement, and the control requirement.
Today, we’ll be talking about the next requirement a company must meet to become a certified minority or woman business enterprise in New York:
Independence
As you know from our series, a New York regulation defines the criteria for qualifying for MWBE status. This regulation requires that “business enterprises for which certification is sought must operate independently.”
When determining whether a business operates independently, the New York State Division of Minority and Women’s Business Development looks at three factors:
- Does the company shares any resources with another business, including office space, personnel, equipment, and storage space?
- Does the company conduct business primarily with only one other business?
- Does the company receive substantial benefits because of its connection to another business?
What exactly do these factors mean? Let’s discuss.
Sharing Resources with Another Business
If your company shares office space, personnel, equipment, and/or other resources with a separate company or enterprise, it likely isn’t operating independently. The Division regularly denies certification to companies that share office space or where the company leases space from another business under unusually-favorable terms.
Likewise, if your company shares employees with another entity and you work in the same office or location, you’re not independent under the Division’s criteria.
This concept was illustrated in May 2024 in an appeal by Dale Workforce Solutions, where the Division denied certification because the company outsourced its IT, legal, and human resources services to another business as well as obtaining its start-up revenue from the same company when it couldn’t secure a bank loan. The Division concluded that because the applicant was so entwined with this other business through its subcontracting of HR, IT, and even legal services, and because of the loan it had received from this business, Dale Workforce Solutions failed to demonstrate that it operated independently.
This can happen when you’ve got an established company that’s supporting your start-up. Be forewarned and be strategic about how to best get the new company off the group if seeking MWBE status is in your future.
Conducting Business Primarily with Another Entity
This somewhat related concept occurs when a company is controlled or owned by a parent company. A parent company typically is a larger or more-established company that has a portfolio of other businesses. The parent may controls or own small businesses either directly or indirectly. So if there’s another entity that appears to be the only business that your company does business with, the Division will likely deny your certification.
In mid-2023, the Division denied Reliance Floor, Inc.’s application for certification for this very reason. It turns out that Reliance Floor was hired by another business to install flooring, and this was in fact the only company for which Reliance Floors ever worked! The client company also controlled all contract negotiations related to Reliance Floors’ work.
As a result, then, Reliance Floor couldn’t prove its independence to the Division. The evidence revealed it was dependent on this other business for contract negotiations and all of its revenue. Because of this, the Division denied MWBE certification.
Receiving Tangible Benefits Because of Connection to Another Business
The last factor related to independence is whether the company receives substantial benefits because of its connection to another business. Like the conducting business issue above, this often comes into play when smaller businesses are seeking certification, and they’re owned and operated by a parent company. Due to the relationship with the parent company, it’s often the case that the smaller company applying for MWBE certification receives contracts, funding, and other benefits simply because of its relationship with the parent company.
This factor isn’t usually seen as an issue on its own and instead typically arises when one of the two factors discussed above exists. This concern goes hand-in-hand with whether the applicant conducts business primarily with another entity. That’s because of how similar these two factors are to one another.
A Quick Recap
Remember that once certification is denied in the first instance, your company bears the burden of proof to establish that the Division’s initial denial decision isn’t supported by substantial evidence. As a consequence, it’s critically important to ensure that your initial application or your recertification submission contains credible evidence establishing – among other things – the independence of your company.
To establish that your company operates independently, you’ve got to show you don’t receive substantial benefits from a parent company and you don’t do business with only one other company.
Further, keep your distance! There’s danger if you share office space, personnel, labor, warehouse space, yards, or equipment with another business. When these factors coincide, it typically means that the company doesn’t operate independently. And that’s usually a death knell for MWBE certification.
What’s Next?
We’ve got the catch-all next. The next criteria we’ll be discussing is what the Division generally calls the miscellaneous criteria, which includes the small business and net worth requirements. Stay tuned as we wrap up the MWBE series soon.
When you have questions or concerns about your small business, we’re here to help.
Reach out anytime through our social channels, email, or give us a call at 716.839.9700.
