**§74.3 Who does Center for Veteran's Enterprise (CVE) consider to own a
veteran-owned**

> **small business?**

An applicant or participant must be at least 51 percent unconditionally
and directly owned by one or more veterans or service-disabled veterans.

\(a\) *Ownership must be direct*. Ownership by one or more veterans or
service-disabled veterans must be direct ownership. An applicant or
participant owned principally by another business entity or by a trust
(including employee stock ownership trusts) that is in turn owned by one
or more veterans or service-disabled veterans does not meet this
requirement. However, ownership by a trust, such as a living trust, may
be treated as the functional equivalent of ownership by a veteran or
service-disabled veteran where the trust is revocable, and the veteran
or service-disabled veteran is the grantor, a trustee, and the sole
current beneficiary of the trust.

\(b\) *Ownership must be unconditional*. Ownership by one or more
veterans or service-disabled veterans must be unconditional ownership.
Ownership must not be subject to conditions precedent, conditions
subsequent, executory agreements, voting trusts, restrictions on
assignments of voting rights, or other arrangements causing or
potentially causing ownership benefits to go to another (other than
after death or incapacity). The pledge or encumbrance of stock or other
ownership interest as collateral, including seller-financed
transactions, does not affect the unconditional nature of ownership if
the terms follow normal commercial practices and the owner retains
control absent violations of the terms. In particular, CVE will evaluate
ownership according to the following criteria for specific types of
small business concerns.

\(1\) *Ownership of a partnership*. In the case of a concern that is a
partnership, at least 51 percent of every class of partnership interest
must be unconditionally owned by one or more veterans or
service-disabled veterans. The ownership must be reflected in the
concern's partnership agreement.

\(2\) *Ownership of a limited liability company*. In the case of a
concern that is a limited liability company, at least 51 percent of each
class of member interest must be unconditionally owned by one or more
veterans or service-disabled veterans.

\(3\) *Ownership of a corporation*. In the case of a concern that is a
corporation, at least 51 percent of each class of voting stock
outstanding and 51 percent of the aggregate of all stock outstanding
must be unconditionally owned by one or more veterans or
service-disabled veterans.

\(c\) *Stock options' effect on ownership*. In determining unconditional
ownership, CVE will disregard any unexercised stock options or similar
agreements held by veterans or service-disabled veterans. However, any
unexercised stock options or similar agreements (including rights to
convert non-voting stock or debentures into voting stock) held by
non-veterans will be treated as exercised, except for any ownership
interests that are held by investment companies licensed under part 107
of title 13, Code of Federal Regulations.

\(d\) *Profits and distributions*. One or more veterans or
service-disabled veterans must be entitled to receive:

\(1\) At least 51 percent of the annual distribution of profits paid on
the stock of a corporate applicant concern;

\(2\) 100 percent of the value of each share of stock owned by them in
the event that the stock is sold; and

\(3\) At least 51 percent of the retained earnings of the concern and
100 percent of the unencumbered value of each share of stock owned in
the event of dissolution of the corporation.

\(e\) *Change of ownership*.

\(1\) A participant may remain eligible after a change in its ownership
or business structure, so long as one or more veterans or
service-disabled veterans own and control it after the change and the
participant files a new application identifying the new veteran owners
or their new business interest.

\(2\) Any participant that is performing contracts and desires to
substitute one veteran owner for another shall submit a proposed
novation agreement and supporting documentation in accordance with FAR
Subpart 42.12 to the contracting officer prior to the substitution or
change of ownership for approval.

\(3\) Where the transfer results from the death or incapacity due to a
serious, long-term illness or injury of an eligible principal, prior
approval is not required, but the concern must file a new application
with the contracting officer and CVE within 60 days of the change.
Existing contracts may be performed to the end of the instant term.
However, no options may be exercised.

\(4\) Continued eligibility of the participant with new ownership and
the award of any new contracts require that CVE verify all eligibility
requirements are met by the concern and the new owners.

\(f\) *Community property laws given effect*. In determining ownership
interests when an owner resides in any of the community property States
or territories of the United States, CVE considers applicable State
community property laws. If only one spouse claims veteran status, that
spouse's ownership interest will be considered unconditionally held only
to the extent it is vested by the community property laws.