Transfer of Ownership and Control within 2 Years Brief
Issue: Transfer of majority ownership or control of the concern from a non-Veteran immediate family member to a Veteran or Service-Disabled Veteran within two years of the application for verification.
38 CFR § 74.4 (h)
- Non-Veterans who transfer majority stock ownership or control of the firm to an immediate family member within 2 years prior to the application and remain involved in the firm as a stockholder, officer, director, or key employee of the firm are presumed to control the firm. The presumption may be rebutted by showing that the transferee has independent management experience necessary to control the operation of the firm, and indeed is participating in the management of the firm.
- Immediate Family Member means father, mother, husband, wife, son, daughter, brother, sister, grandfather, grandmother, grandson, granddaughter, father-in-law, and mother-in-law.
What This Means for an Applicant
- If the majority interest of an applicant is transferred from a non-Veteran family member to a Veteran or service-disabled Veteran, two years prior to the application for verification, and that family member remains involved with the firm as stockholder, officer, director, or key employee of the firm, that family member is presumed to still control the firm. The Veteran or service-disabled Veteran can and should provide documentation to rebut the presumption by explaining how the Veteran or service-disable Veteran has adequate experience to manage the applicant and has final decision making authority over day-to-day and strategic management decisions.
- Be aware of this issue if the Veteran or service-disabled Veteran acquired majority ownership or control via purchase or by gift occurring within two years of the application for verification.
- This provision of the regulation includes the transfer of any quantity of the Membership interest of a limited liability company, the Stock interest of a corporation or the any other ownership interest that results in that Veteran or service-disabled Veteran becoming majority owner (51% or greater) of the applicant.
- This provision of the regulation also includes a transfer of “control”, as defined by 38 CFR § 74.4, from a non-Veteran family member to a Veteran or Service-Disabled Veteran. Control includes “both the strategic policy setting exercises by boards of directors and the day-to-day management and administration of business operations.” 38 CFR § 74.4(b).
- Evidence rebutting the presumption must show that the Veteran or service-disabled Veteran has independent management experience necessary to control the operation of the firm, and indeed is participating in the management of the firm. Résumés or personal history statements can provide evidential support for experience. Business documentation such as signed contracts and company checks or formal meeting minutes can provide evidence of actual day-to-day control
*For Informational Purposes Only*
This information has been provided by the Center for Verification and Evaluation (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.