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Office of Small & Disadvantaged Business Utilization

51% of the Annual Distribution Brief

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Issue:  How can a Veteran owner provide evidence of actual entitlement to receive 51% of the Annual Distribution?

The Regulation

38 CFR § 74.3(d)(1)

One or more Veterans or service-disabled Veterans must be entitled to receive:

  • At least 51 percent of the annual distribution of profits paid to the owners of a corporate, partnership, or LLC applicant or participant.

What This Means for an Applicant

  • The applicant must furnish the Center for Verification and Evaluation (CVE) with documentary evidence that the Veteran owner(s) is/are entitled to 51% of the company’s annual distribution of profits after all of the company’s bills have been paid in order to meet the requirement for ownership of a Veteran-owned small business.

  • The Veteran owner(s) must be entitled to receive a percentage of annual profits equal to the owner(s) percentage of ownership interest.

  • This information is usually found on the company’s Schedule K-1 (Form 1120S) tax statement and outlines the percentage of ownership for each owner.

  • A Veteran owner is not required to draw this profit every year as long as he/she provides written explanation of benefit to the applicant for taking a lesser amount or no distribution at all.  CVE cannot assume that there is a benefit to the applicant; the Veteran applicant must clearly communicate this information to CVE in its application.

  • If the applicant firm suffers a loss, then the Veteran owner will not draw any profit.  In this case, the Veteran owner is responsible for at least 51% of the loss.

*For Informational Purposes Only*

This information has been provided by CVE for general informational purposes and should not be construed as providing legal advice.  You should contact your attorney to obtain advice with respect to any particular issue or problem.  In addition, CVE makes no representation as to the accuracy or whether the above information is currently up-to-date.  All applicants must read the applicable regulations and determine how best to meet these requirements.  The Verification Assistance Briefs do not constitute legal notice or replace the regulations.

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