Central Illinois Business Magazine
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Archive                           August 2011


LEGAL ISSUES

Illinois now hiring: minority and female owned (and operated) businesses


By Randall Green
CIB Contributor
Published: Aug. 2011

Clients and prospective clients frequently come to my office and say they want to start a MAFBE (Minority or Female Owned Business Enterprise) business. After all, the state of Illinois under the Business Enterprise Program (BEP) has a statutory goal to award at least 20 percent of the total dollar amount of state contracts to businesses owned by minorities, females and persons with disabilities. The University of Illinois has an even higher goal of awarding 25 percent of certain contracts to MAFBE businesses.

There is only one problem: Many of them aren't minorities, females or disabled.

In today's economy, businesses are always looking for a competitive advantage or a way to get a leg up on the competition. For businesses that have the opportunity to contract with the state (state universities or other state agencies), a MAFBE certification seems like a great way to gain an advantage. Often owners of closely held businesses think it is as simple as giving their wife a 51 percent ownership in the business and suddenly they'll be flooded with state and U of I contracts.

However, in addition to requiring the submission of a lengthy application and sometimes volumes of supporting documents, a MAFBE business must (i) have at least 51 percent of the business owned by eligible group members (female, minority or disabled person) and (ii) the management and daily business operations of the business must be controlled by one or more eligible group members who is also an owner.

The first prong of this two-pronged test is fairly straightforward. An eligible group member must own a majority of the business. In the case of a corporation, this means the eligible group member must own at least 51 percent of the outstanding stock.

The second prong of the test related to "control" is less clear and there are several obstacles that businesses owned by both eligible and non-eligible group owners often face. Below is a list of factors that the Department of Central Management Services must consider when determining whether eligible group owners "control" the business for purposes of MAFBE certification:

• Do the articles of incorporation show the eligible group owners were involved at the time of incorporation and in what way? If the eligible group owners were not involved at the time of incorporation, when did they become involved?

• Corporate by-laws will be reviewed to determine: (A) the duties of the directors and officers who occupy these positions; (B) the voting rights of the shareholders; and (C) any restrictive language that may affect the eligible group owner's stock voting rights.

• Are there any stock options/shareholders agreements that, if exercised, will dilute or eliminate eligible group owner control?

• Do the eligible group owners make decisions independently?

• Does a review of résumes show the eligible group owners have sufficient background, including education and training, to run the particular business and for the responsibilities assigned?

• Do the eligible group owners continue to work for a firm not eligible for the BEP, and if so, what is the relationship of the firm to the applicant business?

• Who in the firm negotiates contracts and loans, prepares estimates and makes other management and supervisory decisions?

All of these factors are weighed together, and merely testing favorably under some factors will not guarantee MAFBE certification nor will testing unfavorably under others necessarily doom certification. If you think your business is truly owned and controlled by a qualified group member and your business could benefit from doing business with the state of Illinois, a MAFBE certification might be a great way to set your business apart from the crowd and continue to thrive in a down economy.

Of course, as is the case with most laws, rules and regulations, there are exceptions to the general rules, so it is always wise to speak with an attorney who is familiar with the MAFBE application process and can help guide you along the way and answer any questions you may have.

Randy Green is an attorney at Meyer Capel in Champaign. He can be reached at Main: 217-352-1800 or rgreen@meyercapel.com.

This article does not constitute legal advice, nor does it create an attorney-client relationship.

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