1 

SMALL BUSINESS COMPLIANCE GUIDE: 

A GUIDE TO THE SBA’S SIZE PROGRAM 

AND AFFILIATION RULES

July 2020

U.S. Small Business Administration 

A handbook for small businesses and Federal officials interested in learning about the 

SBA’s size program and affiliation rules. 

This document is published by the U.S. Small Business 

Administration pursuant to the National Defense Authorization Act 

of Fiscal Year 2013 (NDAA), Pub. L. 112-239, § 1681(c). The NDAA 

requires that SBA publish this compliance guide to assist business 

concerns in accurately determining their status as a small business. 

This guide has no legal effect and does not create any legal rights. 

Compliance with the procedures described in this guide does not 

establish compliance with the rule or establish a presumption or 

inference of compliance. The legal requirements that apply are 

governed by SBA’s size regulations, which control if there is any 

inconsistency between the rule and the information in this guide.
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONTENTS
 

OVERVIEW 

1. Why is the issue of a firm’s size important? 

2. What is NAICS? 

3. What are size standards? 

4. Where can current size standards be found? 

BUSINESS CONCERN 

1. How does SBA define the term “small business concern”? 

2. Is a small agricultural cooperative a business concern? 

3. How must a small business concern be legally organized? 

4. How are predecessor entities treated? 

5. Where is the regulatory definition of a “business concern”? 

AFFILIATION 

1. How does SBA determine affiliation? 

2. Where are SBA’s regulations governing affiliation? 

3. What are the general principles of affiliation? 

BASES FOR AFFILIATION 

1. What is affiliation based on stock ownership (13 C.F.R. § 121.103(c))? 

2. What is affiliation based on stock options, convertible securities, or an agreement to 

merge (13 C.F.R. § 121.103(d))? 

3. What is affiliation based on common management (13 C.F.R. § 121.103(e))? 

4. What is affiliation based on an identity of interest between individuals or businesses, 

including family members (13 C.F.R. § 121.103(f))? 

5. What is affiliation based on the newly organized concern rule (13 C.F.R § 121.103(g))? 

6. What is affiliation based on common investments or economic dependence (13 C.F.R 

§ 121.103(a) and (f))? 

7. When may SBA find affiliation with parties to a joint venture (13 C.F.R. § 121.103(h)(1) 

and (2))? 

8. When may SBA find affiliation between a prime contractor and a subcontractor (13 

C.F.R. § 121.103(h)(4))? 

9. When may SBA find affiliation as a result of a franchise or license agreement (13 C.F.R. 

§ 121.103(i))? 

10. What is affiliation based on the totality of circumstances (13 C.F.R. § 121.103(a)(5))? 

11. Are there any exceptions to the rules on affiliation (13 C.F.R. § 121.103(b))? 

SUMMARY OF AFFILIATION 

CALCULATING SIZE – RECEIPTS 

1. How does a firm know if it is small for a receipts-based size standard? 

2. What if the company has been in business for less than five years? 

3. Are receipts of affiliates included? 

4. What if an affiliate is recently acquired? 

5. What if the affiliate has been in business for less than three years? 

2
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6. What if the business is no longer my affiliate? 

7. What does SBA mean by the term “receipts”? 

8. What items are excluded from the definition of “receipts”? 

9. What document(s) are used to determine a firm’s “receipts”? 

10. What if a tax return has not yet been filed for a fiscal year? 

11. What is a “completed fiscal year”? 

12. Where is the regulation governing a firm’s annual receipts? 

CALCULATING SIZE – EMPLOYEES 

1. How does a firm know if it is small for an employee-based size standard? 

2. Who is considered an employee? 

3. Are volunteers considered employees? 

4. Are part-time and temporary employees counted the same as full-time employees? 

5. What if the firm has been in business for less than a year? 

6. How is the average number of employees calculated, including affiliates? 

7. Must the employees of a former affiliate be included in the calculation? 

8. Where is the regulation governing a firm’s number of employees? 

FURTHER INFORMATION AND CONTACTS 

3
 
 

 

 

 

 

 

 

 

 

 

 

 

 

OVERVIEW
 

1.	 Why is the issue of a firm’s size important? 

In order to be eligible for certain Federal programs and certain Federal contracts 

and subcontracts, a firm must be a “small business concern.” SBA’s size 

regulations, which are set forth at 13 CFR part 121, are used to determine 

eligibility for all SBA and Federal programs that require a concern to be small. 

For example, a business must be small for the following government contracting 

or business development programs: 

•	 Small business set-asides; 

•	 Small Business Innovation Research (SBIR) program; 

•	 Small Business Technology Transfer (STTR) program; 

•	 Certificate of Competency (COC) program; 

•	 Historically Underutilized Business Zone (HUBZone) program; 

•	 Women-Owned Small Business (WOSB) and Economically Disadvantaged 

Women-Owned Small Business (EDWOSB) programs; 

•	 Service-Disabled Veteran-Owned Small Business (SDVOSB) program; 

•	 Small business subcontracting; 

•	 8(a) Business Development program; and 

•	 7(j) Management and technical assistance program. 

SBA’s size rules also apply to small business loan programs and grant programs. 

A number of government agencies, including the Food and Drug Administration 

and the Department of Veterans Affairs, operate programs for which small 

business status is a requirement for eligibility. The size rules apply to these 

programs, as well. 

2. What is the NAICS? 

To be considered small, business concerns must meet the size standard 

assigned to a six-digit North American Industrial Classification System (NAICS) 

code. The Office of Management and Budget created and is responsible for 

maintaining and revising these codes. The Census Bureau website contains 

4
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

definitions and examples to help businesses determine which NAICS codes best 

describe their business. Although the system does not have codes for every 

single type of business in the United States, it is remarkably comprehensive and 

every business can find a code that describes the kind of business activity in 

which it engages. The government revises the codes every five years/ so a firm’s 

code(s) may change slightly over time. 

(NOTE: The Internal Revenue Service uses Principal Business Activity Codes— 

sometimes known as Principal Business or Professional Activity Codes—which 

also contain six-digits. Although the IRS codes are based on the NAICS, the two 

systems are not the same. An IRS code is not the same as an NAICS code and 

should never be used to determine a company’s size.) 

Companies are responsible for choosing their own NAICS codes; the Federal 

government does not select or assign NAICS codes. A company may have a single 

NAICS code or as many NAICS codes as it needs to describe the various types of 

economic activity it performs. If a company has more than one NAICS code, it 

must designate one code as its primary code. Ordinarily/ a firm’s primary NAICS 

code describes the activity from which it earns most of its revenue. 

3. What are size standards? 

A business is considered “small” or “other than small” depending on its size 

when compared to a size standard. As explained above, SBA assigns a size 

standard to each NAICS code. A business qualifies as a small business concern 

only by reference to an NAICS code(s). Most size standards are stated in terms of 

either receipts or employees; in limited cases the size standard is based on 

something other than receipts or employees (e.g., average assets for certain 

financial institutions). SBA determines whether an entity qualifies as a small 

business concern by counting its receipts or employees plus the receipts or 

employees of all its domestic and foreign affiliates, regardless whether the 

affiliates are organized for profit. 13 C.F.R. § 121.103(a)(6). 

In order to qualify as a small business concern for a particular federal 

procurement, a business must meet the size standard that corresponds to the 

NAICS code assigned to the solicitation and contract. Federal Contracting 

Officers are required to assign a NAICS code to every procurement. 

Example: The Contracting Officer assigns NAICS code 541519, “Other 

Computer Related Services,” to a solicitation. NAICS code 541519 has a 

size standard of $30 million. To be considered a small business for this 

solicitation and the resulting contract, the average annual receipts of the 

5
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

business plus those of all of its affiliates (if any) must total no more than 

$30 million. If the total is greater than $30 million, it is not a small 

business concern for purposes of this solicitation and contract. 

(Instructions for calculating receipts are provided below.) 

SBA reviews size standards on an on-going basis to determine whether they 

need to be adjusted in light of current economic conditions. Federal law also 

requires SBA to review receipts-based size standards at least every five years to 

adjust them for inflation, if necessary. It is a good practice to consult the Table 

of Size Standards from time to time to see whether the size standard(s) for a 

firm’s NAICS code(s) have been modified. 

Certain SBA programs have alternative size standards, that is, size standards 

other than (or in addition to) those listed in the Table of Size Standards. For 

example, in the Small Business Innovation Research (SBIR) and Small Business 

Technology Transfer (STTR) programs, the size standard is 500 employees 

regardless of NAICS. 13 C.F.R. §121.702(c). 

In the 7(a) and Development Company Loan Programs, an Applicant business 

may qualify under either the industry small business size standards or the 

alternative size standard. To qualify under the alternative size standard, the 

Applicant (including affiliates) must meet the following: 

a. The maximum tangible net worth may not exceed $15 million; and 

b. The average net income after Federal income taxes (excluding any carry-over 

losses) for the two full fiscal years before the application date may not exceed 

$5.0 million. 

Applicants for the Small Business Investment Company (SBIC) program may use 

the Table of Size Standards or other net worth and net income standards. 13 

C.F.R. § 121.301(c). Surety Bond Guarantee assistance requires that an 

applicant/ when combined with its affiliates/ meet the size standard “for the 

primary industry in which such business concern, combined with its affiliates, is 

engaged.” 13 C.F.R. § 121.301(d). 

4. Where can current size standards be found? 

To help business owners determine whether their businesses are small, SBA 

publishes a Table of Small Business Size Standards which lists the size standard 

that applies to each NAICS code. The current table is based on the 2017 NAICS; 

the table lists each NAICS code and its assigned size standard. SBA has released 

a size standards tool to help businesses determine whether they qualify as small 

for purposes of Federal contracting. 

6
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The size standards also may be found at 13 C.F.R. § 121.201. 

The industry-based size standards for purposes of SBA's financial assistance 

programs, excluding the Surety Bond Guarantee assistance program, are 

increased by 25% whenever the applicant agrees to use all of the financial 

assistance within a labor surplus area. (Labor surplus areas are listed monthly in 

the Department of Labor publication “Area Trends in Employment and 

Unemployment.”) 

BUSINESS CONCERN 

1. How does SBA define the term “small business concern”? 

In order to be considered a small business, a concern must first satisfy the 

definition of a “business concern.” A “business concern” is an entity that is: 

• organized for profit, 

• has a place of business located in the United States, and 

• operates primarily within the United States 

or 

makes a significant contribution to the U.S. economy through 

payment of taxes or use of American products, materials, or labor. 

A firm must satisfy all three elements of that definition to be considered a 

“business concern.” A nonprofit organization is not a business concern. Once a 

firm qualifies as a “business concern/” it must then determine whether it is 

“small” by selecting the applicable NAICS code and calculating whether it 

satisfies the size standard assigned to that code. 

2. Is a small agricultural cooperative a business concern? 

A small agricultural cooperative is eligible if it is an association acting pursuant 

to the provisions of the Agricultural Marketing Act (12 U.S.C. 1141j) and its size 

does not exceed the size standard established by SBA for other similar 

agricultural small business concerns. A small agricultural cooperative's member 

shareholders are not considered to be affiliated with the cooperative simply 

because they are members of the cooperative. However, a business concern or 

cooperative that does not qualify as small may not be a member of a small 

agricultural cooperative. 

7
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3. How must a small business concern be legally organized? 

A business concern may be organized as an individual proprietorship, 

partnership, limited liability company, corporation, joint venture, association, 

trust or cooperative. Where the business is a joint venture, however, there can 

be no more than 49% participation by foreign business entities in the joint 

venture. 

4. How are predecessor entities treated? 

A firm and its predecessor entity will be treated as one business concern if a 

substantial portion of its assets and/or liabilities are the same. In such a case, 

the annual receipts and employees of the predecessor will be taken into account 

in determining size of the new business concern. 

5. Where is the regulatory definition of a “business concern”? 

It is located at 13 C.F.R. § 121.105. 

AFFILIATION 

1. How does SBA determine affiliation? 

Concerns and entities are affiliated with each other when one controls or has the 

power to control the other, or a third party or parties controls or has the power 

to control both. It does not matter whether the control is exercised, so long as 

the power to control exists. 13 C.F.R. § 121.103(a)(1). Affiliation may also be 

found where one party exercises control indirectly through a third party. 13 

C.F.R. § 121.103(a)(4). SBA has a specific set of rules that explain when another 

person, business or entity is considered an affiliate for size purposes. 

2. Where are SBA’s regulations governing affiliation? 

SBA’s rules on affiliation for its programs (except SBIR/ STTR/ Business Loans/ 

Disaster Loans, and Surety Bonds) are found at 13 C.F.R. § 121.103. The 

regulations are available online at Part 121 of Title 13 of the Code of Federal 

Regulations (CFR). A firm may also contact any of the points of contact at the 

end of this document to receive a copy of the rules. 

For the SBA’s Business Loan/ Disaster Loan/ and Surety Bond programs/ the 

affiliation regulation can be found at 13 C.F.R. § 121.301(f). The Business Loan 

programs consist of the 7(a) Loan program, the Microloan program, the 

8
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intermediary Lending Pilot program, and the Development Company Loan 

program (“504 Loan program”). The Disaster Loan programs consist of Physical 

Disaster Business Loans, Economic Injury Disaster Loans, Military Reservist 

Economic Injury Disaster Loans, and Immediate Disaster Assistance program 

loans. Five specific affiliation rules apply to the Business Loan, Disaster Loan, 

and Surety Bond programs: 

1) Affiliation based on ownership;
 

2) Affiliation arising under stock options, convertible securities, and
 

agreements to merge;
 

3) Affiliation based on management;
 

4) Affiliation based on identity of interest; and
 

5) Affiliation based on franchise and license agreements.
 

SBA’s affiliation regulations governing the SBIR and STTR programs can be 

found at 13 C.F.R. § 121.702(c). Information about the specific affiliation rules for 

the SBIR and STTR programs, including a compliance guide and FAQs, is 

available at the SBIR webpage. 

Differences in the treatment of affiliation in these programs are noted below. 

3. What are the general principles of affiliation? 

Affiliation exists when one business controls or has the power to control another 

or when a third party controls or has the power to control both businesses. 

Control may arise through ownership, management, or other relationships or 

interactions between the parties. 

Control may be affirmative or negative. Negative control includes circumstances 

where a minority shareholder has the ability, under the concern's charter, bylaws, or shareholder's agreement, to prevent a quorum or otherwise block 

action by the board of directors or shareholders. 

9
 
 

 

 

 

 

 

 

 

 

 

 

 

 

If SBA determines that affiliation exists, then SBA will count the receipts, 

employees, or other measure of size for the concern whose size is at issue plus 

the receipts, employees, or other measure of size for all of its domestic and 

foreign affiliates, regardless of whether the affiliates are organized for profit. 

SBA commonly receives questions about whether affiliation exists. The 

following is a summary of SBA’s affiliation rules. 

BASES FOR AFFILIATION
 

1. What is affiliation based on stock ownership (13 C.F.R. § 121.103(c))? 

Control of 50% or more of voting stock. A person1 controls or has the power to 

control an entity if the person owns or controls, or has the power to control, 50% 

or more of the concern’s voting stock. This is a non-rebuttable basis for finding 

affiliation. 

Example: Company A owns Companies B, C and D (54.5%, 81% and 60%, 

respectively). Company A has the power to control Companies B, C and D. 

The companies are all affiliated. The receipts and/or number of employees 

of all four companies will be aggregated in determining the size of any one 

of them. 

1 The term “person” used throughout this document and the regulations includes an individual/ entity/ 

or business concern. 13 C.F.R. § 121.103(c)(1). 

10
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Control of less than 50% voting stock, but large compared to others. If a person 

owns and controls, or has the power to control, a block of voting stock that is 

large compared to all other outstanding blocks of stock (even though it 

comprises less than 50% of the voting stock). This is a non-rebuttable basis for 

finding affiliation. This basis for affiliation does not apply to the Business Loan, 

Disaster Loan, and Surety Bond programs. 

Example 1: Company A owns 40% of the voting stock of Company B and the 

next largest share is 2%. Company A controls Company B because it owns the 

largest block of voting stock of Company B compared to all other 

outstanding blocks of voting stock. Company A and Company B are affiliates. 

In addition, all other companies controlled by Company A will be considered 

affiliates of Company B. 

Example 2: Two individuals each own blocks of shares of Company A. One 

individual owns 46.67% of the business and the other owns 33.33%. The 

individual that owns 46.67% of the stock owns the largest single block, which 

is large compared to any other block, and therefore has the power to control 

the concern. This individual also controls Company B. Company A and 

Company B are affiliated. 

Control of less than 50% voting stock by multiple minority owners. If two or more 

persons each own or control (or have the power to control) less than 50% of a 

concern’s voting stock and (i) the minority holdings are all approximately equal 

in size and (ii) all of the minority holdings taken together are large compared to 

any other stock holdings, each of those persons is presumed to control the 

entity. However, a person may rebut the presumption by showing that it does 

not have control or the power to control. This basis for affiliation does not apply 

to the Business Loan, Disaster Loan, and Surety Bond programs. 

Example: Investor X, Investor Y, and Company A each own 23% of Company 

B. No other stockholder owns more than 5% of Company B. All three persons 

will be presumed to control Company B. Each presumed affiliate may 

attempt to rebut the presumption by showing that its control or power to 

control does not exist. If the presumption is not overcome, then Company A 

and Investors X and Y will all be considered affiliates of Company B. In 

addition, all companies controlled by Company A and Investors X and Y 

would be affiliates of Company B. 

Voting stock is widely held. When a concern’s voting stock is widely held and no 

single block of stock is large as compared with all other stock holdings, the 

11
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

business concern’s Board of Directors and Chief Executive Officer (CEO) or 

President are deemed to have the power to control the concern unless evidence 

is provided to show otherwise. 

Example: In a corporation where no one stockholder has a block of voting 

stock appreciably larger than the others, the concern's Board of Directors 

and its CEO or President are considered to control the entity. This means that 

any other business controlled by the Board or by the CEO or President is an 

affiliate of the business concern in question, unless the Board and CEO or 

President can rebut this presumption. 

Affiliation for the Business Loan, Disaster Loan, and Surety Bond programs 

(13 C.F.R. § 121.301(f)(1)). For the Business Loan, Disaster Loan, and Surety Bond 

programs, SBA will deem a minority shareholder to be in control if that 

individual or entity has the ability, under the concern's charter, by-laws, or 

shareholder's agreement, to prevent a quorum or otherwise block action by the 

board of directors or shareholders. If no individual, concern, or entity is found 

to control based on that test or the 50% test, SBA will deem the Board of 

Directors or President or CEO (or other officers, managing members, or partners 

who control the management of the concern) to be in control of the concern. 

2. What is affiliation based on stock options, convertible securities, or an 

agreement to merge (13 C.F.R. § 121.103(d))? 

SBA treats stock options, convertible securities, and agreements to merge as 

though the rights granted have been exercised. SBA gives present effect to an 

agreement to merge (including an agreement in principle) or to sell stock. If 

these rights have been granted and they confer the power to control, affiliation 

exists. 

Example 1: If Company A holds an option to purchase a controlling interest 

in Company B, the situation is treated as though Company A had exercised 

its rights and had become owner of the controlling interests in Company B. 

Company A and Company B are affiliates. In addition, all companies 

controlled by Company A will be considered affiliates of Company B. 

Example 2: Company A and Company B are discussing a potential merger. 

The companies’ representatives have met several times over the past two 

months. There is neither a formal nor an informal agreement to merge. 

Unless the two companies have reached an agreement in principle, SBA will 

not find affiliation between them based solely upon these open and 

continuing discussions. 

12
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3. What is affiliation based on common management (13 C.F.R. § 121.103(e))? 

If one or more officers, directors, managing members, or general partners of a 

business concern also control the Board of Directors and/or the management of 

another business concern, the concerns are affiliates. 

Example 1: Controlling members of Company A’s Board of Directors occupy 

three out of five positions in Company B’s Board of Directors. The two 

concerns are affiliated because the controlling members of the Board of 

Directors of Company A also control the Board of Directors of Company B. In 

addition, all concerns controlled by Company A will be considered affiliates 

of Company B and vice versa. 

Example 20 A controlling member of Company A’s Board of Directors has veto 

rights over the majority decisions of Company B’s Board of Directors. By 

possessing such negative control, Company A has control of the Board of 

Directors of Company B and the two concerns are affiliated. In addition, all 

companies controlled by Company A will be considered affiliates of 

Company B and vice versa. 

The test of common management does not require that the person(s) exercising 

the common management have total control of a concern. Critical influence or 

the ability to exercise substantive control over the concern’s operations is also 

a basis for finding affiliation between firms. Persons in senior leadership 

positions, such as the CEO and COO, are presumed to exercise substantive 

control over a firm’s operations/ although they can rebut that presumption by 

showing significant evidence to the contrary. 

In the Business Loan, Disaster Loan, and Surety Bond programs, affiliation also 

arises where a single individual, concern, or entity controls the management of 

the applicant concern through a management agreement. 

4. What is affiliation based on an identity of interest between individuals or 

businesses, including family members (13 C.F.R. § 121.103(f))? 

Individuals or firms that have identical (or substantially identical) business or 

economic interests may be treated as one party (i.e., affiliated) unless they can 

demonstrate otherwise. Family members, persons with common investments, 

or firms that are economically dependent on each other through contractual (or 

other) relationships, are presumed to be affiliated. However, individuals or firms 

may seek to demonstrate that no affiliation exists by showing that apparently 

identical interests are, in fact, separate. Patterns of subcontracting, 

13
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

commingling of staff and/or facilities, and other substantial ties may 

demonstrate an identity of interest. 

Example 1: Several officers of Company A are also officers of Company B. The 

two companies are in the same line of work and extensively subcontract with 

each other. The interrelationship between the two companies results in 

them acting as one, and therefore they have an identity of interest and are 

considered affiliates. 

Example 2: Companies A and B share office space and equipment in the same 

location and also share key employees. In addition, Company A has sent a 

substantial amount of business to Company B for each of the last three years 

(which amounts to more than 70% of Company B’s total revenues). All these 

facts, taken together, indicate that the two companies have combined their 

resources to each other’s benefit and therefore are affiliated 

Example 3: When three of four members of a concern’s Board of Directors 

have multiple investments in common with each other outside the concern, 

they may be viewed as sharing an identity of interest. The three directors 

would be deemed to control the Board and to therefore also control the 

business. Each outside business that these three directors control would be 

an affiliate of the business concern in question. 

Example 4: A husband and wife founded an accounting firm in 1974. In 2008, 

their daughter opened an office supply store using her own funds and a bank 

loan. Her parents purchase supplies from the daughter’s store/ and sales to 

her parents represent 10% of the daughter’s revenues. There are no other 

business interactions between the daughter and her parents. If there are no 

other indicia of affiliation, SBA would find the business dealings to be 

minimal and the presumed affiliation due to family relationships to have 

been rebutted. 

The presumption of affiliation between family members is limited to married 

couples, parties to a civil union, parents, children, and siblings. 

In the Business Loan, Disaster Loan, and Surety Bond programs, affiliation based 

upon an identity of interest is limited to close relatives with identical or 

substantially identical business or economic interests. For these programs only, 

a close relative is defined as a spouse, parent, child, sibling, or the spouse of any 

such person. 13 C.F.R § 120.10. 

14
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5. What is affiliation based on the newly organized concern rule (13 C.F.R § 

121.103(g))? 

A new concern is affiliated with an existing concern if: 

(1)	 The former (or current) officers, directors, principal stockholders, managing 

members, or key employees of one concern organize a new concern; 

(2)	 Both concerns are in the same or related industries or fields of operation; 

(3)	 The individuals who organized the new concern serve as the new concern’s 

officers, directors, principal stockholders, managing members, or key 

employees; and 

(4)	 The one concern is furnishing or will furnish the new concern with contracts, 

financial or technical assistance, indemnification or bid or performance 

bonds, and/or other facilities, whether for a fee or otherwise. 

The presumption of affiliation may be rebutted by showing that there is a clear 

fracture between the two businesses. 

Example: The former chief executive officer of Company A organizes 

Company B and serves as Company B’s managing member. Companies A and 

B are in the same or similar industries. Company B receives subcontracts 

from Company A. Company B is affiliated with Company A unless it can show 

establish that there is a clear fracture between the two companies. 

A clear line of fracture exists if the family members have no business relationship 

or involvement with each other's business concerns, or the family members are 

estranged. A clear fracture may be found even if there is a minimal amount of 

business between two concerns. Factors that may be relevant in deciding 

whether a clear fracture exists include whether the firms share officers, 

employees, facilities, or equipment; whether the firms have different customers 

and lines of business; whether there is financial assistance, loans, or significant 

subcontracting between the firms; and whether the family members participate 

in multiple businesses together. 

This basis for affiliation does not apply to the Business Loan, Disaster Loan, and 

Surety Bond programs. 

6. What is affiliation based on common investments or economic dependence (13 

C.F.R § 121.103(a) and (f))? 

A concern that is economically dependent upon another person or concern may 

be found to be affiliated with that concern. It may also be found affiliated with 

15
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other concerns controlled by the individual or concern on which it is dependent. 

It may be found affiliated on the basis of control or power to control, an identity 

of interest, or a combination of these. 

Affiliation through economic dependence can be presumed where the concern 

in question derived 70% or more of its receipts from another concern over the 

previous three fiscal years. This presumption may be rebutted by showing that 

despite the contractual relations with another concern, the concern at issue is 

not solely dependent on that other concern. The presumption may be rebutted 

by showing that the concern has been in business for a short amount of time and 

has only been able to secure a limited number of contracts. 

Example 1: Company A performs subcontracts for Company B, and Company 

B accounts for 90% of Company A’s revenues. Company A’s existence 

depends on work from Company B and the two are deemed affiliates. 

Example 2: Company A provides significant loans to Company B and 

guarantees other loans to Company B. Company B’s overreliance of 

dependence on Company A’s financial support (both direct and indirect) 

results in affiliation between the two. 

Example 30 A loan between two businesses is not an arm’s-length transaction 

and the terms and conditions of the loan demonstrate financial dependence 

by one business on the other. The two are deemed affiliates. 

Example 4: Company A obtained a patent for a product it developed. It 

licenses the use of the product to Company B, and makes it available for 

other companies to obtain a license. No affiliation exists between Company 

A and Company B based solely on the licensing agreement. 

This basis for affiliation does not apply to the Business Loan, Disaster Loan, and 

Surety Bond programs. 

7. When may SBA find affiliation with parties to a joint venture (13 C.F.R. § 

121.103(h)(1) and (2))? 

A joint venture is an association of individuals and/or concerns that combine to 

carry out a specific business venture for joint profit. 

•	 The parties to a joint venture are considered affiliates for all purposes, unless 

an exception exists (see below) or the joint venture receives no more than 

three contract awards over a two-year period. 

16
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

•	 The parties to a joint venture are affiliates of each other if any one partner 

seeks SBA financial assistance for use in connection with the joint venture. 

•	 The parties to a joint venture that submit an offer for a particular 

procurement or property sale are affiliated with each other for performance 

of that particular contract, unless an exception to affiliation applies. 

Even if an exception to affiliation exists, a party to a joint venture must include 

in its receipts its proportionate share of receipts generated by the joint venture, 

and in its total number of employees its proportionate share of joint venture 

employees when determining its own size. 

Exceptions to Affiliation for Joint Venture Partners. (13 C.F.R. § 121.103(h)(3)(i)­

(iii)): 

(1)	 Every party to the joint venture is small. The members of a joint venture 

comprising two or more businesses will not be affiliated as long as each party is 

small under the size standard assigned to the procurement. 

Example 1: Company A and Company B form joint venture AB and submit an 

offer for a procurement with a NAICS code and corresponding receipts based 

size standard of $15 million. The estimated dollar value of the procurement 

(including options) is $8 million. Companies A and B are both small for the 

size standard assigned to the procurement and therefore are not affiliated. 

The joint venture is therefore considered small for this procurement. 

Example 2: Company A and Company B form joint venture AB and submit an 

offer for a procurement with a size standard of 500 employees. The 

estimated dollar value of the procurement is $11 million. Companies A and B 

are both small for the size standard assigned to the procurement and 

therefore are not affiliated. The joint venture is considered small for the 

procurement. 

(2)	 All-Small Mentor-Protégé Joint Ventures. A small business protégé and its 

approved mentor through the All-Small Mentor-Protégé program may joint 

venture as a small business for any government contract or subcontract, 

provided the protégé qualifies as small for the procurement. Such a joint venture 

may seek any type of small business contract (i.e., small business set-aside, 8(a), 

HUBZone, SDVOSB, or WOSB) for which the protégé firm qualifies (e.g., a protégé 

firm that qualifies as a WOSB could seek a WOSB set-aside as a joint venture with 

its SBA-approved mentor), if the joint venture meets the requirements of the 

particular program as to contents of the joint venture agreement, performance 

of work, and documentation submission. 

17
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For more information visit the All Small Mentor Protege program web page. 

(3)	 8(a) BD Mentor-Protégé Joint Ventures. A joint venture between an 8(a) protégé 

and its SBA-approved mentor is considered small if the protégé is small for the 

size standard, and if: 

(i)	 For 8(a) BD Program Procurements. The joint venture agreement has 

been approved prior to contract award in accordance with 13 C.F.R. § 

124.513 and if for an 8(a) BD sole source award, the participant has not 

reached the dollar limit set forth in 13 C.F.R. § 124.519. 

(ii)	 For non-8(a) BD Program Procurements. SBA does not need to approve 

the joint venture prior to award; however, if size is protested, the 

provisions of 13 C.F.R. § 124.513(c) and (d) will apply. 

For more information visit the 8(a) Business Development Program web page. 

General Affiliation of Parties to a Joint Venture 

Three Awards in Two Years. Generally, the parties to a joint venture will be 

affiliated with each other for all purposes if that specific joint venture receives 

more than three contract awards over a two-year period. The two-year period 

begins on the date of award of the first contract or contract novation received 

by the joint venture. The same parties may create different, specific joint 

ventures that can again qualify to receive three contract awards over a two-year 

period; however, eventually such a longstanding relationship may lead to a 

finding of general affiliation between the parties where one of the joint venture 

partners is generally reliant on the other for a significant portion of its contracts. 

Example 1: Joint venture AB receives its first contract award on August 17, 

2015. AB receives its second award on June 1, 2016. AB then submits offers 

on April 4, 2017, June 14, 2017, and July 5, 2017. On August 31, 2017, AB 

learns that it is the apparent successful offeror for all three offers that it 

submitted in April, June, and July 2017. AB may perform all five contract 

awards without a finding of affiliation for purposes of those contracts or in 

general based solely on the number of awards received over a two-year 

period because AB submitted its offers within the two-year period from 

August 17, 2015, through August 17, 2017, and it had received two or fewer 

awards during the two-year period preceding the date of its initial offers 

including price for all three offers made in April, June, and July 2017. The 

number of offers submitted during the two-year period does not count 

against the three awards that may be received. 

18
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Example 2: Joint venture AB received three contract awards during the twoyear period from August 17, 2015 through August 17, 2017. The same joint 

venture partners of AB then created joint venture CD on August 31, 2017. 

Joint venture CD may receive up to three contract awards during the twoyear period from August 31, 2017 through August 31, 2019; however, the 

continuing relationship between the same joint venture partners may 

eventually lead to a finding of general affiliation for all purposes (e.g., one 

company to a joint venture partner submits an offer for a solicitation itself, it 

may be deemed affiliated with the other companies in the joint venture for 

purposes of that solicitation/contract). 

This basis for affiliation does not apply to the Business Loan, Disaster Loan, and 

Surety Bond programs. 

8. When may SBA find affiliation between a prime contractor and a subcontractor 

(13 C.F.R. § 121.103(h)(4))? 

A prime contractor and a subcontractor may be found affiliated if the 

subcontractor is determined to be an ostensible subcontractor and is not a 

similarly situated entity. In that case, SBA will treat the prime and subcontractor 

as joint venturers, which requires that the entities be affiliated. 

SBA will find that a subcontractor is an ostensible subcontractor when the 

subcontractor is not a similarly situated entity and: 

(1)	 the subcontractor performs the primary and vital requirements of a contract, 

or of an order under a multiple award schedule contract; or 

(2)	 the prime contractor is unusually reliant on the subcontractor. 

A “similarly situated entity” is defined in 13 C.F.R. § 125.1 as a subcontractor that 

has the same small business program status as the prime contractor. This means 

that for a HUBZone requirement, a subcontractor that is a qualified HUBZone 

small business concern; for a small business set-aside, partial set-aside, or 

reserve, a subcontractor that is a small business concern; for a SDVOSB 

requirement, a subcontractor that is a self-certified SDVOSB; for an 8(a) 

requirement, a subcontractor that is an 8(a) certified Program Participant; and 

for a WOSB or EDWOSB contract, a subcontractor that has complied with the 

requirements of 13 C.F.R. part 127. In addition to sharing the same small 

business program status as the prime contractor, a similarly situated entity 

must also be small for the NAICS code that the prime contractor assigned to the 

subcontract that the subcontractor will perform. 

19
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All aspects of the relationship between the prime and subcontractor are 

considered, including the terms of the proposal, agreements between the prime 

and subcontractor, and whether the subcontractor is the incumbent contractor 

and is ineligible to submit a proposal because it exceeds the applicable size 

standard for that solicitation. 

Example 1: Company A and Company B form Team AB, which submits an 

offer for a small business set-aside contract. Company A is the prime 

contractor and Company B is the subcontractor that is not a small business. 

The teaming agreement does not provide a detailed description of the tasks 

and the percentage of work to be performed by Company A or Company B 

but states that Company A will perform the majority of the work. Company A 

is located at the same address as Company B. Company A employs 10 

individuals who will perform administrative duties and some of the primary 

requirements associated with the contract. Company B employs 50 

individuals who will manage the contract and also perform the primary 

requirements associated with the contract. Company B wrote the Team’s 

proposal and is supporting Company A financially for this contract so that 

Company A may qualify to receive bonding to perform this contract. 

Company B is Company A’s ostensible subcontractor based on the totality of 

the circumstances and thus Company A and Company B are affiliated. 

Example 2: Company C and Company D form Team CD, which submits an 

offer for an 8(a) BD competitive set-aside contract to provide building 

maintenance services. The primary and vital tasks of the procurement are 

electrical maintenance and mechanical maintenance services. Other, nonprimary tasks associated with the contract include elevator maintenance. 

Company C is the prime contractor and Company D is the subcontractor. 

Company D is not an 8(a) Participant. The teaming agreement states that 

Company C will perform at least 51% of the work associated with this 

contract. Team CD’s proposal states that 100% of the labor expenses 

associated with elevator maintenance and management services, and 30% 

of the labor expenses associated with mechanical and electrical engineering 

services will be spent on Company C’s personnel. The proposal states that 

the remaining 70% of the labor expenses associated with the primary and 

vital requirements of mechanical and electrical maintenance will be spent 

on Company D’s personnel. Although Company C is spending at least 51% of 

the overall labor expenses on its own employees, it is spending 70% of the 

labor expenses associated with the primary and vital requirements on 

Company D’s employees. As a result/ Company D is Company C’s ostensible 

subcontractor because it is performing the majority of the primary and vital 

20
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

requirements, and Company D is not a similarly situated entity. Therefore, 

Company C and Company D are affiliated. 

Example 3: Company E submits an offer for a small business set-aside 

contract to provide software development services. Company F is not a small 

business and is Company E’s subcontractor. The estimated value of the 

procurement is $10 million. The solicitation requires that all offerors 

demonstrate that the prime or one of its subcontractors has experience 

performing at least three (3) contracts of similar size and scope in the past 

five (5) years. Company E has no experience in the computer software 

industry but can demonstrate management and consulting experience for 

contracts with values below $1 million. Company E’s proposal highlights 

Company F’s experience as a prime contractor on at least three (3) contracts 

of similar size and scope during the past three (3) years. This past 

performance submission does not violate the requirements of the 

solicitation but it demonstrates that Company E is unusually reliant on 

Company F and would not qualify to receive this contract without Company 

F’s past performance. Company F is not a similarly situated entity. As a result, 

Company F is Company E’s ostensible subcontractor and the two firms are 

affiliated. 

This basis for affiliation does not apply to the Business Loan, Disaster Loan, and 

Surety Bond programs. 

9. When may SBA find affiliation as a result of a franchise or license agreement (13 

C.F.R. § 121.103(i))? 

SBA generally will not consider the restrictions imposed by a license or franchise 

agreement as they relate to standardized quality, advertising, accounting 

format or similar provisions, when determining whether the franchisor or 

licensor is affiliated with the franchisee or licensee, if the franchisee or licensee 

has the right to profit and bears the risk of loss associated with ownership. Even 

if SBA does not find affiliation as a result of the franchise or license agreement, 

it may find affiliation through other tests such as common ownership, common 

management or excessive restrictions upon the sale of the franchise interest. 

SBA maintains an SBA Franchise Directory that lists franchise brands that SBA 

has reviewed for affiliation and eligibility in SBA loan programs. The Franchise 

Directory indicates whether the brand meets the Federal Trade Commission 

(FTC) definition of franchise, 16 C.F.R part 436, and whether SBA requires an 

21
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

addendum to the brand’s franchise agreement for a franchisee to be eligible for 

SBA financial assistance. For more information on the SBA Franchise Directory, 

see SOP 50 10 5(K). 

10. What is affiliation based on the totality of circumstances (13 C.F.R. § 

121.103(a)(5))? 

Affiliation may be found under the totality of the circumstances, even if the 

evidence is insufficient to show affiliation for a single independent factor listed 

above. In order to make such a finding, affiliation may be found when the ties 

between the businesses are so suggestive of reliance as to render the businesses 

affiliates. 

11. Are there any exceptions to the rules on affiliation (13 C.F.R. § 121.103(b))? 

SBA has provided ten exceptions to the general rules on affiliation. The following 

list is not complete but lists the most commonly applied exceptions. Under 

these exceptions, SBA will not find affiliation in of the following circumstances: 

(1)	 A business that is wholly or substantially owned by investment companies or 

development companies that are licensed or qualified under the Small 

Business Investment Act of 1958 (SBIA), are not considered affiliates of those 

investment companies or development companies. 

Example: Company A is 51% owned by Company B, a Small Business 

Investment Company (SBIC) that is licensed under the SBIA. Company A is 

not affiliated with Company B. 

(2)	 An applicant for financial, management, or technical assistance in the Small 

Business Investment Company Program, the 504 Loan Program, or the 

Surety Bond Program is not affiliated with the following investors: 

(a)	 Venture capital operating companies, as defined in the U.S. Department 

of Labor regulations found at 29 C.F.R. § 2510.3-101(d); 

(b)	 Employee benefit or pension plans established and maintained by the 

Federal government or any state, or their political subdivisions, or any 

agency or instrumentality thereof, for the benefit of employees; 

(c)	 Employee benefit or pension plans within the meaning of the Employee 

Retirement Income Security Act of 1974, as amended; 

22
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(d)	 Charitable trusts, foundations, endowments, or similar organizations 

exempt from Federal income taxation under section 501(c) of the Internal 

Revenue Code of 1986, as amended; 

(e)	 Investment companies registered under the Investment Company Act of 

1940 (Act of 1940), as amended; and 

(f)	 Investment companies as defined under the Act of 1940, which are not 

registered under the 1940 Act because they are beneficially owned by less 

than 100 persons/ if the company’s sales literature or organizational 

documents indicate that its principal purpose is investment in securities 

rather than the operation of commercial enterprises. 

(3)	 A business that is owned and controlled by Indian Tribes, Alaska Native 

Corporations (ANCs), Native Hawaiian Organizations (NHOs), or Community 

Development Corporations (CDCs), or which is owned and controlled by an 

entity that is wholly owned by an Indian Tribe, ANC, NHO or CDC, is not 

considered an affiliate of such business concerns or entities. 

Example 1: Company A is 51% owned and controlled by an ANC. Company A 

is not affiliated with its 51% ANC owner. 

Example 2: Company A is 51% owned by Company B. Company B is 100% 

owned by an Indian Tribe. Company A is not affiliated with Company B based 

upon ownership. 

(4)	 A business that is owned and controlled by Indian Tribes, ANCs, NHOs, or 

CDCs, or which is owned and controlled by an entity that is wholly owned by 

an Indian Tribe, ANC, NHO or CDC will not be found affiliated with other 

concerns owned by these Indian Tribes, ANCs, NHOs, and CDCs based on 

common ownership and common management. In addition, SBA will not 

find affiliation based upon the performance of common administrative 

services (e.g., bookkeeping and payroll) so long as there is adequate 

payment for those services. Affiliation may be found for other reasons. 

Example 1: Company A is 51% owned and controlled by an ANC. Company B 

is also 51% owned and controlled by the same ANC. Company A and 

Company B share the same ownership and management team however 

these firms are excluded from affiliation. 

Example 2: Company A is 51% owned by Company B. Company B is 100% 

owned by an Indian Tribe. Company B also owns Company C. Company A 

23
 
 

 

 

 

 

 

 

 

and Company C are not affiliated despite the fact they share the same 

ownership and management. 

(5)	 A business that leases employees from a business primarily engaged in 

leasing employees to other businesses or which enters into a co-employer 

arrangement with a Professional Employer Organization (PEO) is not 

affiliated with the leasing company or PEO solely because it leases or coemploys employees. Affiliation may be found for other reasons. 

Example: Company A leases 80% of its employees from a company that 

primarily leases individuals to other companies. Company A is not affiliated 

with the leasing company solely because of the leasing relationship. 

(6)	 A business that has an SBA-approved mentor-protégé agreement under the 

8(a) Mentor Protégé Program or the All-Small Mentor-Protégé Program is not 

affiliated with a mentor firm solely because the protégé firm receives 

assistance from the mentor under the agreement. Affiliation may be found 

for other reasons. 

24
 
 

SUMMARY OF AFFILIATION 

Category !!!ilition my  !oun i!... 

Ownership • An individual, concern, or entity owns or has the power to control 

more than 50% of voting equity 

• An individual, concern, or entity owns or has the power to control a 

block of stock that is large compared to others 

• If two or more persons own, control, or have the power to control less 

than 50% of voting shares and such holdings are equal or about equal 

in size and are large compared to other holdings, SBA presumes that 

each controls or has the power to control 

• If voting equity is widely held and no block is large as compared to all 

others, then Board and CEO/President will be deemed to control 

Options, convertible • SBA treats stock options, convertible securities, and agreements to 

securities, merge (including agreements in principle) as though the rights granted 

agreements to merge have been exercised; however, agreements to open or merely continue 

(given present effect) negotiations about a possible merger or stock sale are not given 

present effect 

Common 

management 

• Officers, managing members, partners who control the management 

of the concern also control the management of another concern 

• Individuals or entities that control the board of directors of the 

concern also control the board or management of another concern 

Identity of interest SBA may presume an identity of interest (and thus affiliation) among two 

or more persons/entities, if they are: 

(a) family members or if individuals or firms have common investments 

showing identical or substantially identical business or economic 

interests. 

(b) economically dependent on another firm 

Newly organized 

concern 

• The firm’s officers, directors, principal stockholders, managing 

members, general partners, or key employees organize another 

concern in the same or related industry and serve in such capacity for 

the new concern and the one furnishes the other with contracts or 

other assistance. The firm can rebut the presumption of affiliation by 

showing that a clear line of fracture exists 

25
 

e 
 

 

 

 

 

 

 

 

 

 

Joint ventures • Parties to a joint venture that submit an offer for a particular 

procurement or property sale are affiliated with each other for 

performance of that particular contract, unless one of the exceptions 

to affiliation listed apply, such as both partners being small 

• Generally, the parties to a joint venture will be affiliated with each 

other for all purposes if that specific joint venture receives more than 

three contract awards over a two-year period. The two-year period 

begins on the date of award of the first contract received by the joint 

venture 

• The same parties may create different joint ventures that can qualify to 

receive three contract awards over a two-year period; however, a longstanding relationship may lead to a finding of general affiliation 

between the parties 

• Some exceptions to affiliation exist for joint ventures 

Ostensible 

subcontractor 

• The firm is a non-similarly situated subcontractor (a) that performs or 

will perform primary and vital requirements of a contract or (b) upon 

which the prime contractor is unusually reliant 

Franchise and license 

agreements 

• As long as the franchisee or licensee has the right to profit and bears 

the risk of loss associated with ownership, affiliation is not likely to be 

found 

Totality of the 

circumstances 

• Based upon the totality of circumstances, SBA determines that 

affiliation exists 

CALCULATING SIZE – RECEIPTS 

1. How does a firm know if it is small for a receipts-based size standard? 

If the size standard is receipts-based, the small business will need to calculate its total 

receipts for its five most recently completed fiscal years and divide the total by five. 

Therefore/ if the concern’s annual receipts were $3 million for 2015/ $10 million for 2016 

$2 million for 2017, $4 million for 2018, and $6 million for 2019, and it had no affiliates, 

its size would be $5 million (i.e., $25/5 = $5). 

If the concern has been in business five or more complete fiscal years but has a short 

year as one of the years within its period of measurement, annual receipts means the 

total receipts for the short year and the four full fiscal years divided by the total number 

of weeks in the short year and the four full fiscal years, multiplied by 52. 

26
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IMPORTANT NOTE: Any business certifying its size on or before January 6, 2022, may 

elect to calculate its annual receipts and the receipts of affiliates using either the total 

receipts of the concern (and its affiliates) over its most recently completed 5 fiscal years 

divided by 5, or the total receipts of the concern (and its affiliates) over its most recently 

completed 3 fiscal years divided by 3. 

Applicants/borrowers with the Business Loan or Disaster Loan Programs are required 

to use the three-year calculation. 

2. What if the company has been in business for less than five years? 

If the company has been in business for less than five complete fiscal years, then the 

total receipts for the period the company has been in business is divided by the 

number of weeks in business, and then multiplied by 52. 

3. Are receipts of affiliates included? 

Yes. The average annual receipts of a business concern that has affiliates is calculated 

by adding the average annual receipts of the business concern with the average annual 

receipts of each affiliate. 

4. What if an affiliate is recently acquired? 

If the firm acquired an affiliate or has been acquired as an affiliate during the applicable 

period of measurement or before the date on which the firm certified itself as small, the 

annual receipts calculation must include the receipts of the acquired or acquiring 

concern. This aggregation applies for the entire period of measurement, not just the 

period after the affiliation arose. 

5. What if the affiliate has been in business for less than three years? 

If the affiliate has been in business for a period of less than three years, the receipts for 

the fiscal year with less than a 12-month period are annualized. In other words, take the 

total receipts for the period the concern has been in business, divide that by the number 

of weeks in business, and then multiply the result by 52. 

6. What if the business is no longer my affiliate? 

Do not include the annual receipts of a former affiliate if the affiliation ceased before 

the date used for determining size. This exclusion of annual receipts of a former affiliate 

applies during the entire period of measurement, rather than only for the period after 

which affiliation ceased. 

27
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7. What does SBA mean by the term “receipts”? 

“Receipts” means “total income” (or in the case of a sole proprietorship/ “gross 

income”) plus “cost of goods sold” as these terms are defined and reported on Internal 

Revenue Service (IRS) tax return forms (such as Form 1120 for corporations; Form 1120S 

and Schedule K for S corporations; Form 1120, Form 1065 or Form 1040 for LLCs; Form 

1065 and Schedule K for partnerships; Form 1040, Schedule F for farms; Form 1040, 

Schedule C for other sole proprietorships). 

8. What items are excluded from the definition of “receipts”? 

Do not include any of the following in the calculation of receipts: 

(i) net capital gains or losses; 

(ii) taxes collected for and remitted to a taxing authority if included in gross or 

total income, such as sales or other taxes collected from customers and 

excluding taxes levied on the concern or its employees; 

(iii) proceeds from transactions between a concern and its domestic or foreign 

affiliates; and 

(iv) amounts collected for another by a travel agent, real estate agent, 

advertising agent, conference management service provider, freight forwarder 

or customs broker. 

For size determination purposes, these are the only exclusions from receipts. All other 

items, including subcontractor costs, reimbursements for purchases a contractor 

makes at a customer's request, and employee-based costs such as payroll taxes, must 

be included in receipts. 

9. What document(s) are used to determine a firm’s “receipts”? 

The law requires that receipts be calculated using the Federal income tax returns 

(together with any amendments) that the firm filed with the IRS on or before the date 

of self-certification to determine size status. SBA will not use tax returns or 

amendments filed with the IRS after the initiation of a size determination. 

10. What if a tax return has not yet been filed for a fiscal year? 

If the firm did not file a Federal income tax return with the IRS for a fiscal year which 

must be included in the period of measurement, SBA will calculate the concern's annual 

receipts for that year using any other available information, such as the concern's 

audited financial statements, regular books of account, or information contained in an 

affidavit by a person with personal knowledge of the facts. 

28
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11. What is a “completed fiscal year”? 

A “completed fiscal year” means a taxable year including any short year. “Taxable year” 

and “short year” have the meanings attributed to them by the IRS. 

12. Where is the regulation governing a firm’s annual receipts? 

This regulation is located at 13 C.F.R. § 121.104. 

CALCULATING SIZE – EMPLOYEES
 

1.	 How does a firm know if it is small for an employee-based size standard? 

The average number of employees of a concern (including the employees of all 

domestic and foreign affiliates) is the average of the number of employees for each of 

the pay periods for the preceding completed 12 calendar months. 

2.	 Who is considered an employee? 

SBA counts all individuals employed on a full-time, part-time, temporary, permanent, 

or other basis. This includes employees obtained from a temporary employee agency, 

professional employer organization, or leasing concern. SBA will consider the totality 

of the circumstances, including criteria used by the IRS for Federal income tax 

purposes, in determining whether individuals are employees of a concern. Independent 

contractors are not considered to be employees for purposes of calculating a firm's 

number of employees. 

3.	 Are volunteers considered employees? 

Volunteers (i.e., individuals who receive no compensation, including no in-kind 

compensation, for work performed) are not considered employees. 

4.	 Are part-time and temporary employees counted the same as full-time 

employees? 

Yes. Part-time and temporary employees are counted the same as full-time employees. 

5.	 What if the firm has been in business for less than a year? 

If the firm has been in business for less than 12 months, it must use the average number 

of employees for all of the pay periods during it has been in business. 

6.	 How is the average number of employees calculated, including affiliates? 

29
 
 

 

 

 

 

 

 

 

 

 

 

To calculate a firm average number of employees for size purposes, add the average 

number of employees for every affiliate to the average number of employees for the 

subject business. If a concern has acquired an affiliate or been acquired as an affiliate 

during the applicable period of measurement or before the date on which it selfcertified as small, the employees counted in determining size status include the 

employees of the acquired or acquiring concern. Furthermore, this aggregation applies 

for the entire period of measurement, not just the period after the affiliation arose. 

7. Must the employees of a former affiliate be included in the calculation? 

Do not include the employees of a former affiliate if the affiliation ceased before the 

date used for determining size. This exclusion of employees of a former affiliate applies 

during the entire period of measurement, rather than only for the period after which 

affiliation ceased. 

8. Where is the regulation governing a firm’s number of employees? 

This regulation is located at 13 C.F.R. § 121.106. 

30
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FURTHER INFORMATION AND CONTACTS
 

This Guide is an overview of some basic principles of size and affiliation as set forth in 

SBA’s regulations and decisions from SBA’s Office of Hearings and Appeals. A firm 

should review all applicable regulations carefully before certifying a business’s size 

status. 

For further information or questions, please contact the SBA Size Specialist who is 

responsible for the area in which the company is located. See below or refer to the SBA 

Government Contracting Area Directory. There are six Area Offices in SBA’s Office of 

Government Contracting, listed below. Each has someone designated as a Size 

Specialist. 

Area 1 

Office of Government Contracting 

Boston Area Office 

Small Business Administration 

10 Causeway Street, Room 265 

Boston, MA 02222 

Tel: (617) 565-5622 or (212) 264-3231 

Area 2 

Office of Government Contracting 

Philadelphia Area Office 

Small Business Administration 

660 American Avenue, Suite 301 

King of Prussia, PA 19406 

Tel: (484) 868-3263 

Area 3 

Office of Government Contracting 

Atlanta Area Office 

Small Business Administration 

233 Peachtree Street, NE, Suite 225 

Atlanta, GA 30303 

Tel: (404) 331-0139 

Area 4 

Office of Government Contracting 

Chicago Area Office 

31
 
 

 

 

 

 

 

 

 

 

 

 

 

Small Business Administration 

500 West Madison Street, Suite 1150 

Chicago, IL 60661-2511 

Tel: (312) 353-7674 

Area 5 

Office Government Contracting 

Dallas/Fort Worth Area Office 

Small Business Administration 

150 Westpark Way, Suite 245 (Mailbox 8) 

Euless, TX 76040 

Tel: (817) 684-5302 

Area 6 

Office of Government Contracting 

San Francisco Area Office 

Small Business Administration 

455 Market Street, Suite 600 

San Francisco, CA 94105 

Tel: (415) 744-4242 

THERE ARE TWO OFFICES THAT MAY BE CONTACTED IN WASHINGTON, DC 

Office of Size Standards Office of Government Contracting 

U.S. Small Business Administration U.S. Small Business Administration 

409 3rd Street, S.W. 409 3rd Street, S.W. 

Washington, DC 20416 Washington, DC 20416 

Tel: (202) 205-6618 Tel: (202) 205-6460 

32