If you are a business owner who is female or a person of color, becoming certified may be an avenue for you to obtain more contracts and additional revenue. Larger corporations and governmental entities frequently seek businesses headed by women or people of color for contracts or as subcontractors.
However, the process for qualifying as a minority-owned or woman-owned business can be lengthy and tedious. There are also significant penalties for companies that make improper claims of being minority-owned or woman-owned.
Qualifying as Minority-Owned
The primary agency for certifying minority-owned businesses is the National Minority Supplier Development Council (NMSDC). The application can be completed online; however, actual certification is administered by the regional certification office in charge of regulating the area where the company is located. Certification fees must be paid before applications are processed, and the entire process can require as much as 90 days.
To qualify as a minority-owned business through NMSDC, a company must be operated for profit and located within the United States or one of its trust territories. Control of everyday operations, plus 51 percent ownership of company-issued stock must be in the hands of one or more qualifying individuals. The company need not be incorporated and there are no size limits. Qualifying owners must have at least 25 percent documented heritage from at least one of the following racial groups:
- Black and/or African American
- Native American
Specific Programs for Minority-Owned Businesses
There are a number of federal, state and local programs that certify minority-owned businesses. The list below represents a partial selection.
- Small Business Administration (SBA) 8(a) Business Development Program: Open to small businesses with at least 51 percent ownership by individuals who are socially (racially) and economically disadvantaged. The SBA website includes numerous resources and tools designed to help applicants with the process. There is no fee required.
- State and Local Minority Business Enterprise (MBE) Programs: Qualifications and fees vary. However, if a state or local municipality has more than one minority certification program, qualifying for one program results in eligibility for all of them.
Qualifying as Woman-Owned
Federal, state, and local programs also exist for businesses that are at least 51 percent owned and controlled by women. Women of all races are usually eligible; however, women must almost always be United States citizens or hold legal resident status.
The National Woman Business Owners Corporation (NWBOC) is a national private organization that certifies women-owned businesses across the country. The Women’s Business Enterprise National Council (WBENC), a nonprofit organization based in Washington, D.C., represents another avenue for certification of women-owned businesses.
Specific Programs for Women-Owned Businesses
Just as for minority-owned businesses, programs exist on the federal, state and local levels for women-owned businesses. The list below represents a small sample.
- Woman-Owned Federal Contracting Program: Initiated under the administration of George W. Bush in 2010, this SBA program assigns set-asides to businesses that are at least 51 percent woman owned and controlled for federal contracts. Owners must be United States citizens.
- Women-Owned Businesses (WBE): Program for businesses that are at least 51 percent owned and controlled by women. Eligible owners must be United States citizens or legal resident aliens.
Required Documentation for MBEs and WBEs
The certification process for minority and women-owned businesses requires extensive personal and financial documentation. Specifics vary between programs; however, the following list represents documents required by nearly all programs.
- Proof of minority or woman ownership
- Proof of American citizenship or legal resident statement
- Business history
- Résumés for business owners and board of directors members
- Business structure (sole proprietorship, partnership, corporation, limited liability company)
- Business profit and loss statements
- Personal and/or business tax returns
- W-2 or 1099 forms for employees and contractors
- Inventory of business assets and equipment (including business location)
- Copies of stock certificates (if applicable)
Penalties for Fraudulent Claims
Disreputable firms sometimes attempt to qualify for MBE or WBE preferential status by naming a qualifying individual firm as a figurehead, while the real work is performed by majority and male-owned and operated firms. However, the penalties for such fraudulent activity can be severe. For example, in 2014, Moretrench American Corporation was ordered to pay $3 million dollars to settle a federal lawsuit. The majority-owned firm passed off a shell company as a minority owned firm while working on the World Trade Transportation Hub.
Disclaimer: This article provides general descriptions of the process and requirements for business owners to qualify for minority or women-owned status. It is not intended to provide specific legal or business advice. Please seek specific advice from legal and business-related professionals for questions.