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Girl Power: Certifying Women-Owned Businesses

Natalie Brandt

Attorney, Wright Conatser, P.L.L.C.,

Visiting Professor, UNT Dallas College of Law


ISSUE 12

SPRING 2023

GENDER & SEXUALITY

I. Introduction

There are nearly 13 million American women-owned business enterprises.¹That represents over 40% of American businesses.² Even though men run most publicly traded companies and the U.S. Supreme Court has yet to have a female majority, women undeniably represent an essential and robust piece of the American economy. And as the Chinese Proverb goes, “women hold up half the sky.” Women also pack lunches, drive carpools, care for aging parents, attend soccer games, and run their own companies.


Women become entrepreneurs for various reasons: the desire to be one’s own boss; job dissatisfaction; the pursuit of a passion; financial autonomy; or independence.³ One factor contributing to the growth and success of female entrepreneurship is the Woman-Owned Business Enterprise (“WBE”) certification.


What is a Certified Woman-Owned Business?


In short, a certified WBE is a business in which a woman (or women) owns at least 51% of the company. Many organizations offer certification, but the Women’s Business Enterprise National Council (“WBENC”) is the premier authority and agency for WBE certification in the United States and its Territories. Headquartered in Washington D.C, WBENC has 14 regional partner organizations (“RPOs”) around the country. Its certification standards are the most stringent of any certifying organization, and the WBENC certificate carries an unmatched cache and gravitas. A WBE will have a physical certificate, which can (and is often required) to be presented when bidding for certain jobs or contracts.


Why Does WBE Certification Exist?


Perhaps Kofi-Anan, the former UN Secretary-General, said it best: “[a]s study after study has taught us, there is no tool for development more effective than the empowerment of women.” The philosophical underpinning of WBE certification is to empower women in business by “offer[ing] the tools to help them succeed.”


By dint of history, businesses are usually owned or operated by men. After all, it was not until the 19th Amendment was passed in 1920 that American women were given the right to vote. Even without political clout, however, women have owned and operated businesses for centuries. One of the earliest known women entrepreneurs is Anna Bissell. In the mid-1880s, Anna’s husband invented a small machine to sweep up dust in their shop.Together, the Bissells turned the clever, homemade domestic device into a business.¹⁰ After being unexpectedly widowed in 1889, Anna—devastated but driven to support her young family—carried on. She turned the Bissell Company into a corporate behemoth.¹¹ You can purchase one of several different Bissell vacuums today.

The WBENC exists to ensure women entrepreneurs can thrive in a world and economic landscape that has historically favored men. A WBE certificate is a badge of honor and a membership card to a powerful organization full of Anna Bissells, big and small.


How Do I Get Certified?


Generally, certification is a five-step process. It can take some time to complete, but it is straightforward. The WBENC provides a comprehensive checklist for applicants to follow. While certification is designed to be a “DIY” journey, some of the requirements often seem opaque; many applicant businesses retain lawyers to assist with the process, particularly with gathering and producing the necessary documentation. But hiring an attorney is not required and should not be considered a barrier to success. Like many aspects of running a business, achieving WBE certification simply takes patience, organization, and drive.


Step One: Eligibility


The first—and perhaps most crucial—step in attaining WBE certification is determining whether your business is eligible.¹² Plenty of companies are owned or operated by women but, for myriad reasons, are not eligible to be classified as certified Woman-Owned Business Enterprises. Who is at the helm is only the first of about six threshold questions for assessing eligibility.


Question 1. Does a woman have majority ownership of the business?

Whether the business is an LLC, a partnership, or another type of entity, it must be owned by one or more women. That means that women hold at least 51% of the equity in the business.¹³ For example, if an LLC (ownership comprised of members) has just two members, one of which is a woman, she must technically own at least 51%. This is most readily proven with formation and governance documents.


Some examples of governing documents include:

  • For an LLC, a certificate of formation filed with the Secretary of State, and an Operating Agreement;

  • For a partnership, the Partnership Agreement would suffice.

  • For a corporation, you could provide the Certificate of Formation and Bylaws, and other agreements that could affect management or control, such as a voting agreement.

Question 2. Does a woman manage the business?

Who makes day-to-day operating decisions? You must be able to demonstrate that a woman truly runs the company.¹⁴ A female leader cannot be a figurehead or operate in name only. A woman must lead the charge, make crucial operating decisions, and actively run things day to day.¹⁵ The simplest way to establish this is with governing documents and contracts. In addition to the governing document listed above, some examples of supporting materials would include agreements that affect management or control, such as:

  • Management agreements

  • Consulting Agreements

  • Voting Agreements

  • Service agreements affecting day-to-day operations

  • Agreements with subsidiaries and other affiliates control

Question 3. Does a woman have unrestricted business control in legal documents and day-to-day operations?¹⁶

This question may seem very similar to number 2 above, and it is, but there is an important distinction. The company’s legal documents must show that a woman (or women) has unrestricted ability to make decisions, vote, take on capital or debt, etc. There cannot be any document that undercuts or circumvents a woman owner’s management or authority. For example, is there a management agreement wherein all management decisions are actually delegated to someone else? Does a woman own 51% of the company, but her two fellow members have the ability to veto her decisions? If decisions among members must be unanimous, then a woman owner could be outvoted.


Question 4. Does a woman hold the highest defined title in the company’s legal documents?¹⁷

The actual title does not matter. A business can be run by a president, a CEO, or another C-level executive (think “Chief Idea Officer”) or a General Partner in the case of a partnership. Whatever titles exist, the highest one in the power structure must be held by a woman.


Question 5. Is there documented evidence that the female owner(s) contributed capital or has industry expertise?

A woman cannot have simply been installed as a leader in the company. Her ownership must be proven with evidence that her equity stake is the product of her own investment of equity.¹⁸ That equity, however, can be in the form of money or expertise (a/k/a “sweat equity”). Remember, the philosophy behind granting WBE certification is to encourage and support female entrepreneurs and businesses. In other words, here is where the WBENC says, “put your money where your mouth is.”


Question 6. Is the owner a U.S. Citizen or a Lawful Permanent Resident?

The business must prove that its majority owners (whether comprised of one or more women) are U.S. citizens or lawful permanent residents.¹⁹ A driver’s license, birth certificate, or passport will suffice.


If the answer to these six questions is “yes,” then your business is likely eligible for certification. The next step is to compile and produce a variety of documentation for the certifying agency.


Step 2: Gather Paperwork²⁰


Step two is gathering the required documentation, which are mostly identified as either “required” or “mandatory.” Mandatory documents must be included.²¹ If one is unavailable, you must provide a written statement explaining why. Required documents, by contrast, must also be produced but can be omitted if it is just not applicable to your business.


The WBENC’s checklist of documents is a helpful resource and provides a comprehensive list of exactly what is required. It is recommended that applicants marshal everything in advance of starting the online application.²² Some materials are optional, but most are mandatory. The following are some of the key documents requested by the WBENC²³:

  • Sworn affidavit (the form is provided by the WBENC)²⁴

  • Governing documents (e.g., formation documents and organizational agreements, such as those mentioned above)

  • Financial Information (e.g., P&L statements, balance sheets, federal tax returns, form w-2)

  • Personnel lists

  • Debt information (e.g., loan agreements, security agreements, trusts, promissory notes)

  • Management or consulting agreements

  • Proof of capital or equity investment

  • Resumes of leadership

  • Licenses

  • Leases

An attorney can be very helpful in preparing the requested materials—chief among those being governance documents—and explaining what is or is not mandatory. Many businesses, however, choose not to hire an attorney when starting a company, and some simply cannot afford to do so. Have no fear, intrepid entrepreneur! You can run a business: you can get certified. It may take time and perseverance, but the WBENC offers significant support, and regional partners are available to assist.²⁵


Step 3: Apply²⁶


The third step is to complete the application, which is entirely online at WBENC’s website. The application consists primarily of filling in information and uploading supporting documentation. This is also an opportunity to brag: the WBENC asks applicants to tell their company’s stories. Why did you start or join this company? Who are your partners? What is the history of the business? The WBENC is actually interested and genuinely cares. There is a non-refundable application fee, the amount of which is proportional to the applicant company’s revenue. For instance, the application fee for a company generating revenue under $1 million is $350; the application fee for a company with revenue up to $5 million is $500.


Step 4: Site Visit²⁷


Once your application is submitted, and the WBENC has confirmed that the supporting documentation is complete, the next step is a site visit. A regional partner for the WBENC will make an in-person visit to your place of business and conduct an interview. Often, applicants find this stage of the process intimidating, but it is a meaningful part of due diligence. “A site audit can feel like an attempt to poke holes in your application so they can deny your acceptance,” says Julie Strong, owner and CEO of C1S Group, a woman-owned construction company based in Dallas, Texas. “But it’s really a very fair and transparent process.”


Step 5: Certification Determination²⁸


The final step in the certification process is for the regional partner to review the application and decide if the company meets the eligibility requirements. This stage can take up to three months once the application is completed.


A small percentage of applications are denied, most of which are for documentation issues such as outdated ownership. Things happen, and ownership can change hands. For example, a father could leave his business to his daughter, who has successfully run and scaled the business since taking over. But if the operating agreement (in an LLC, for example) is not updated to reflect the change in ownership, the WBENC will deny the application. Denied applicants can appeal the decision within 30 days. If your application is denied for a resolvable documentation issue, you may reapply after six months.


Now What?


Certification is valid for one year from the date of issue.²⁹ WBEs must recertify annually to keep their status.³⁰ Renewal is not automatic, but the process is much simpler than the original application. If there are no changes to management or ownership, it’s as simple as submitting an affidavit, and regular annual financial information such as a tax return and W-2s. If there have been any structural changes to the company, you will need to submit additional updated records to support any changes in ownership or management. Every three years, the WBENC conducts a site audit and conducts interviews. Again, such oversight is benevolent and just continued due diligence.


What Are Some Benefits of Certification?


WBENC and its affiliates and partners provide networking opportunities, access to capital, and even direct access to business opportunities.³¹ The WBENC database serves both the WBEs listed and outside companies that want to do business with WBEs. As a WBE, you can use your certification credentials to reach WBENC corporate members and a host of government agencies, many of which carry mandates to contract with a certain percentage of WBEs. The City of Dallas, for instance, has a formal policy around hiring WBEs for the City’s construction, general services, and professional services contracts. It states in part, “[i]t is the policy of the City of Dallas to encourage the growth and development of M/WBEs that can successfully compete for contracting opportunities.”³²


A profound challenge for many women entrepreneurs is networking and support. Other women, regardless of industry, can provide unmatched connections, support, resources, and encouragement. In addition to regular networking events, the WBENC provides programming, education, and resources designed specifically to ensure women succeed.


Being a WBE can also help with recruiting. Some businesses now specifically recruit and only hire women. And some women just prefer to work with or for other women. Natalie Wurst, the co-founder of Clutch Creative Marketing (clutchcm.com), notes that most of her 20 employees are women. Natalie values the creativity and comradery of women in the workplace. “Women have a lot to offer, and we enjoy employing them.”


Why is the Process So Rigorous?


The rigors of the certification process are precisely why the certificate is so valuable. For years, businesses took advantage of loopholes and lackadaisical oversight. For example, a business owned and operated by men could appoint a female administrative assistant as the President without giving her any authority. Technically, that company could claim to be a woman-owned business and, thus, enjoy minority status and access to customers eager to meet their diversity quotas. This rouse and its various analogs worked for decades.


Over time, however, organizations and communities closed ranks and created precise and robust metrics for achieving WBE status. The philosophy is grounded in support: support of women and their ability to launch, operate, and grow businesses. The WBENC and other such agencies go through a due diligence process to ensure that women truly get the advantages of being a WBE.


But I Have a Small Business...


The size and type of business do not matter. A sole proprietorship can qualify as a WBE.³³ The application process is open to all. The smaller the company, the fewer supporting documents needed—a company comprised of one woman has less to prove. The documents, however, still need to be accurate and current. A small business would, perhaps, benefit most from the support, contacts, and resources offered by a community of WBEs.


The Small Business Administration (SBA) has its own certification: the Woman-Owned Small Business (WOSB) accreditation.³⁴ The application process is similar to that of the WBENC, but it is specifically designed to give women-owned small businesses access to government contracting opportunities.³⁵


Should I Apply?


One does not need WBE certification to succeed. The organization and the certificate exist to encourage and assist businesswomen regardless of their industry, company size, or revenue. The application process is significant, to be sure, but it is also a good checklist of the key documents any functioning business should really have and use. So often, business disputes arise because parties do not take the time to craft or maintain accurate contracts, governance documents, or financial records. By merely asking applicants to prove up their ownership bona fides, the WBENC ends up helping businesswomen take care of their own interests. So, even if you choose not to apply now, the WBENC checklist is an excellent reminder of the documentation necessary to run a successful operation. Seeking WBE certification is your decision, but why not get some help holding up your half of the sky?

 

Suggested Citation: Natalie Brandt, Girl Power: Certifying Women-Owned Businesses, ACCESSIBLE LAW, Spring 2023, at 11.

Girl Power [Issue 12]
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Sources: [1] American Express, The 2019 State of Women-Owned Business Report (2019), https://ventureneer.com/wp-content/uploads/2019/10/Final-2019-state-of-women-owned-businesses-report.pdf. [2] Id.

[3] 2022 Women in Business Trends, Guidant, https://www.guidantfinancial.com/small-business-trends/women-in-business/ (last visited Jan. 27, 2023) [4] Certification, WBENC, https://www.wbenc.org/certification/ (last visited Jan. 27, 202 [5] Id.

[6] Empowering women the most effective development tool, Annan says, United Natins: U.N. NEWS (Feb. 28, 2005), https://news.un.org/en/story/2005/02/130132.

[7] About WBENC, WBENC, https://www.wbenc.org/about-wbenc/#who-we-are (last visited Jan. 27,

2023).

[8] Marilyn Much, Anna Sutherland Bissell Knew How to Clean Up in the Sweeper Market,Investors.com: Investor’s Business Daily (Oct. 5, 2018, 1:35 PM)

[9] Id.

[11] Id.

visited Jan. 27, 2023). [13] Certification Eligibility, WBENC, https://www.wbenc.org/certification/certification-eligibility/ (last

visited Jan. 27, 2023). [14] Id. [15] Standards & Procedures, WBENC: Certification Eligibility, at 12–14, https://www.wbenc.org/wp-content/uploads/docs/WBENC_Standards__Procedures_Feb2018.pdf (last updated Feb. 2018). [16] Id.

[17] See supra note 13.

[18] See supra note 13.

[19] See supra note 13.

[20] See supra note 12.

[21] Documentation Required, WBENC, https://www.wbenc.org/certification/documentation-required/ (last visited Jan. 27, 2023). [22] Id. [23] Id. [24] The sworn affidavit can be found here:

[25] Regional Partner Organizations, WBENC, https://www.wbenc.org/regional-partner-organizations/ (last visited Jan. 27, 2023). [26] See supra note 12. [27] See supra note 12. [28] See supra note 12. [29] Currently Certified – Get Involved!, WBENC, https://www.wbenc.org/certification/currently-certified/ (last visited Jan. 27, 2023). [30] Id. [31] See supra note 4.

[32] See the WBENC certification site for the complete list or contact a WBENC regional partner for help.

[33] See supra note 15, at 10.

[34] Women-owned businesses, SBA, https://www.sba.gov/business-guide/grow-your-business/women-owned-businesses (last visited Jan. 27, 2023).

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