Why affiliation can change the answer (13 CFR 121.103)
What 13 CFR 121.103 says about control and affiliation, why the FGExperts calculator does not compute it, and questions to take to counsel.
Affiliation is the part of a size determination that a calculator cannot do safely. 13 CFR 121.103 sets out when concerns are affiliates, and the answer turns on judgment about control.
The general principles
Under 121.103(a)(1), concerns and entities are affiliates of each other when one controls or has the power to control the other, or when a third party or parties control or have the power to control both. The section says it does not matter whether control is exercised, so long as the power exists. Section 121.103(a)(2) says SBA considers ownership, management, previous relationships or ties with another concern, and contractual relationships.
Negative control
Control may be affirmative or negative. Under 121.103(a)(3), negative control can include a minority shareholder who can, under the charter, by-laws or a shareholders' agreement, prevent a quorum or otherwise block action. The same paragraph lists extraordinary matters where a minority block does not count as negative control.
Why this site does not compute it
Affiliation requires a review of ownership documents, management and contracts across every related entity. Adding up affiliates' receipts from a list someone typed in would produce a number that looks precise and is not a determination. For that reason every calculator result states that affiliation is not computed, and the figures exclude affiliates.
Questions to take to counsel
- Does any owner, officer or investor have power to control, or to block action by, another entity?
- Do two entities share management, offices, employees, equipment or key contracts?
- Has any entity been formed, or had its ownership changed, within the period you average over?
- Does any contract give one entity control over another's operations or staffing?
These questions come from the structure of 121.103. They are not legal advice, and a yes answer does not decide anything by itself.