Tips From The Staff/Board

The #1 Reason Eligible Women-Owned Applications are Denied

You’re sure you meet all of the criteria. You own 80% of the shares, are the CEO, and actively manage and run the business independent of any male-owned resources.

And yet you just got your denial letter. Why?

There are so many reasons that someone could be denied, which is why we recommend that you review the standards and procedures in full, with the eligibility criteria starting on page 9.

But the number 1 reason an otherwise eligible application is denied… governing document issues.

Your governing documents can be any number of documents depending on your structure:

• Bylaws- for a corporation

• Operating agreement- for an LLC

• Shareholders’ agreement

• Service agreement- if you outsource a major component of your operations such as a manufacturer for your product or if you have a franchise agreement

Ultimately, these documents spell out legally how your business should be governed and run, who has the power to take certain actions, and how decisions are made. These documents are legally binding and enforceable, even if they don’t reflect what’s actually happening in real life.

Unfortunately, many brand new business owners use free templates from sites like LegalZoom, which contain standard clauses that don’t meet WBENC criteria. Even agreements drafted by the most reputable lawyer can include ineligible clauses.

So what issues should you be on the lookout for?

Unanimous Consent or Supermajority Clauses

What they are: Clauses that state that all owners/directors (or a supermajority, usually 75% or above), must agree in order for certain actions to be taken.

Example: 4(a)(iii) Unanimous consent of all directors is required to borrow a loan exceeding $25,000.

Why this isn’t eligible: The female owner(s) must have complete control over the company. Her decision making power cannot be vetoed by a minority share male owner. A unanimous consent clause, like the one above, limits her ability to take certain actions. In the example above, if she brought on a minority share male owner, she would need his approval in order to take out a new loan.

How to fix it: Draw up an amendment and sign it, changing the “unanimous consent” to “a majority 51% consent.” WBENC requires women to hold 51% or more, so even if you bring on a 49% co-owner, you’d still be protected.

The second issue we see too often is…

Highest Title Definitions in the Officers & Directors Sections

What they are: In your bylaws or operating agreement, the section on officers should define what the highest title is in your company. This could be President, CEO, Managing Member, etc. A woman must hold this title. If a corporation has both a Board of Directors and a separate level of officers, the document should define what title is the highest on the Board (usually Chairperson) and what the highest officer title is (usually President). In this case, a woman must hold both of these titles, though it can be two separate women.

Example: 5(b) The President is the CEO of the company.

Why this may not be eligible: If you hold the CEO role, and you have a man in the President role, legally by the example above, he is the one in charge of the company, not you. Whether or not this is truly what’s happening in real life unfortunately doesn’t matter… we have to go by the legally binding documents.

How to fix it: Draw up another amendment and sign it, defining your title as the head of the company. For example: “The CEO shall be the highest officer in the company, and all other officers shall report to the CEO.”

No one at WBENC wants to deny a truly women-owned, women-run company. But we have to abide by your legal, governing documents. We have no way of knowing whether these clauses were written intentionally or if these were just an honest oversight.

If you do get denied on a technicality like this, you can absolutely reapply in 6 months with fixed documents.

And while staff can’t coach you or review your documents in advance of receiving your application, we highly recommend you take a close eye yourself. Not just to make sure you don’t get denied on a technicality, but to also make sure you’re protected as the owner of your company.

Up next: Are Husband/Wife Businesses WBENC Eligible?

Up next: 7 Deadly Sins of Submitting Your Application Documents

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