Why Bennifer’s (second) engagement is a disaster under the SBA’s size and affiliation rules – JD Supra | Region & Cash

For those of you who are secretly hoping for a journey back in time to the early years of the new millennium, your wish has been granted. After almost two decades apart, Ben Affleck and Jennifer Lopez are engaged again. Personally, I was hoping that the shrill dial tone sequence of a 56k modem would make a comeback, but we don’t all get what we want.

The engagement story has many aspects, few of which matter to a prosecutor. However, what the story highlights is the very real hookup opportunity for spouses with independent business interests. So let’s indulge in a little vicarious life. Ben and Jennifer’s relationship is ripe for investigation into family ties.

Size & Affiliation

Belonging is a big subject with many nuances. In simple terms, affiliation refers to the ability of one person or organization to control another. For federal procurement purposes, the SBA identifies several relationships that can bind two or more companies together. The touchstone of everyone is control.

The practical consequence of affiliation is an increase in company size. The size of a small business includes the size of its affiliates. Belonging to a small company can quickly turn it into a big one. This can result in lost awards or disqualification from SBA programs.

All of the specifics of membership are too extensive to cover in a single post. Instead, this post will address a more manageable topic – affiliation between businesses owned by close family members.

Affiliation & family business

The SBA’s rules assume that companies owned or controlled by close family members that do business with each other are associated companies. The notion is that family members do not take any action that would harm their relative’s business interests. As such, there is a degree of control exercised by family members doing business together.

So, who is close family according to the regulations? In short, nuclear family. The SBA’s rules identify “married couples, parties to a civil partnership, parents, children and siblings” as the relationships that can establish an affiliation. The regulations of the SBA also make it clear that “[o]Other types of family relationships are not grounds for belonging to family relationships.”

With regard to business relationships, the SBA cites subcontracting and joint ventures as examples that could lead to family affiliation. Providing or sharing loans, resources, equipment, locations, or employees is also listed as a business conduct that can create a bond between family businesses.

In short, when a spouse, parent, child, or sibling each owns a business and collaborates with one another, a family affiliation is presumed.

Now the family affiliation is presumptive. The SBA believes that an affiliation exists when close family members control two companies and do business with each other. However, this conclusion can be refuted as it shows “a clear fault line between concerns”. This is the case when there is significant disagreement between family members or when there is no business relationship between the family businesses.

The Affiliation of Bennifer

Now for the good stuff. Like a law professor trying to keep the hypothetical interesting in his exam with actual references, I’ll use the engagement of Ben Affleck and Jennifer Lopez to highlight some of the intricacies of family connections.

Before we delve too deep, let’s acknowledge reality. Ben and Jennifer are just engaged. Engaged couples are Not are among the close family ties identified by the SBA as a reason for the affiliation. Therefore, there is no risk of family affiliation until both say “yes”.

However, this reality kills the mood of this post, so let’s gloss over that detail and jump headlong into some hypotheses. We’ll go through the decades to see how things change based on the type of relationship.

To set the stage (pun), both Ben and Jennifer are successful business people. Ben co-owns a production company with Matt Damon called Pearl Street Films. For the purposes of this post, we will assume that he controls this business. Among other things, Jennifer is the founder of JLo Beauty. Also, given the name, we assume she controls the business.

2000s

Let’s take the couple’s relationship back in 2002. They are madly in love and get engaged. We’re assuming they’re getting married too. Pearl Street Films is working on a project and signs deals with JLo Beauty to provide makeup for the film.

Is there a family affiliation? Yes. Ben and Jennifer are spouses, which is one of the specific family relationships identified by the SBA. In addition, Ben and Jennifer own and control Pearl Street Films and JLo Beauty, respectively, who do business with each other. This is a classic case of family affiliation.

2010s

Ben and Jennifer are on the rocks. Ben goes to MTV and berates Jennifer Lopez’s cooking skills. In return, Jennifer gives Entertainment Tonight a full interview and explains that Ben is no longer in her life. It’s a whole thing. They separate and pursue other people. Despite this, Pearl Street Films is working on a new project and signing deals with JLo Beauty to provide makeup for the film.

Is there a family affiliation? Probably no. While the contractual ties are the same, the personal relationship between Ben and Jennifer is very different. Now alienated, neither party would feel guilty about putting their needs ahead of the others. In short, control worries are eliminated. Accordingly, Ben and Jennifer were able to show a clear fault line despite a contractual relationship.

2020s

Reconciliation is in the air. Ben and Jennifer will try again. They are happily married again. Pearl Street Films is working on another project but hasn’t done business with JLo Beauty in years. When it needs make-up specialists, it subcontracts with an independent make-up company.

Is there a family affiliation? no This circumstance reflects the family situation in the example of the early 2000s. Ben and Jennifer are spouses who control two companies. But none of their companies are currently signing deals with each other. While their rekindled romance has removed the breaking point in the family relationship, the fact that the companies don’t do business with each other creates a new break. As such, Pearl Street Films and JLo Beauty are not affiliated companies.

pack things

As the examples of Ben Affleck and Jennifer Lopez show, family affiliation is very fact-specific. Changes in personal and professional relationships have a significant impact on follow-up risk.

More specifically, the identity of family interests can pose significant problems for successful family businesses. Small businesses often support each other. Whether it’s a loan, contract, or community facility, support from close family members can quickly lead to membership under SBA regulations. For companies approaching their size threshold, this affiliation can have a significant impact on eligibility.

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