SDVOSB Ownership & Control Self-Audit Checklist
Almost every SDVOSB denial and status-protest loss turns on one of two questions: does a service-disabled veteran really own 51% of the company unconditionally, and does that veteran really control it day to day? Run this audit before you apply to VetCert and again before you bid a high-value set-aside. A single 'no' is a red flag worth fixing before a contracting officer or a competitor finds it.
Who Should Run This
- Veterans preparing an SBA VetCert application
- Certified SDVOSBs facing or anticipating a status protest
- Counsel and consultants reviewing governance documents before certification
Ownership (13 CFR 128.12)
One or more service-disabled veterans directly and unconditionally own at least 51% of the company.
Ownership must be direct — held by the veteran, not through another entity — and unconditional, meaning not subject to any conditions, executory agreements, options, or other arrangements that could divest it (13 CFR 128.12(a)).
For a corporation, the veteran owns at least 51% of each class of voting stock and of all outstanding stock.
The 51% test applies across every class of voting stock and to aggregate equity, so a separate class can't be used to dilute the veteran's stake (13 CFR 128.12(b)).
For an LLC, the veteran owns at least 51% of each class of member interest.
Partnership and LLC interests are measured the same way — 51% of every class of partnership or membership interest (13 CFR 128.12(c)–(d)).
The veteran's ownership is not subject to any conditional agreement, option, or right that could cause divestiture.
Stock options, convertible securities, or buy-sell terms held by non-veterans that could presently divest the veteran's majority make ownership 'conditional' and disqualify the firm (13 CFR 128.12(e)).
The veteran shares in profits and distributions at least in proportion to their ownership percentage.
Profit and distribution rights must be commensurate with the veteran's ownership; arrangements that route disproportionate returns to non-veterans cut against unconditional ownership (13 CFR 128.12(g)).
Control & Management (13 CFR 128.13)
A service-disabled veteran holds the highest officer position in the company (e.g., CEO or President).
The veteran who controls the firm must hold the highest officer position and have managerial experience of the extent and complexity needed to run it (13 CFR 128.13(a), (c)).
That veteran manages both the day-to-day operations and the long-term strategic decision-making.
Control means both — daily management and the long-term direction of the business — not a titular role over operations a non-veteran actually runs (13 CFR 128.13(a)).
The veteran works at the company full-time during normal working hours and is not employed elsewhere in a way that impairs control.
The veteran must devote full-time to the business during its normal hours of operation; outside employment that would prevent day-to-day control is disqualifying (13 CFR 128.13(i)).
No non-veteran has actual control through supermajority voting, board composition, or negative-control provisions.
Provisions that let a non-veteran block ordinary business decisions (supermajority quorum/voting on routine matters, control of the board) constitute impermissible negative control (13 CFR 128.13(g)–(h)).
Non-veterans do not control the firm through loans, critical licenses, leases, or supply arrangements they can pull.
Dependence on a non-veteran for a critical license, financing, a lease, or a sole supply source can amount to control of the firm and undercut the veteran's day-to-day control (13 CFR 128.13(j)).
If the veteran is permanently and totally disabled, a qualifying spouse or appointed caregiver controls daily operations.
Where the highest-ranking veteran owner is permanently and totally disabled and unable to manage daily operations, a spouse or permanent caregiver may control the firm without defeating eligibility (13 CFR 128.13(k)).
Where Firms Fail This Audit
- Treating ownership of the holding company as ownership of the operating business — ownership must be direct.
- Granting an investor or key non-veteran employee stock options or a buy-back right that could presently divest the veteran's 51%.
- Setting bylaws or an operating agreement that require a supermajority for ordinary decisions, handing a minority non-veteran negative control.
- Naming the veteran CEO on paper while a non-veteran runs operations and signs the contracts.
- The veteran holding a full-time W-2 job elsewhere, leaving no full-time devotion to the certified firm.
Frequently Asked
How much of an SDVOSB must a service-disabled veteran own?
At least 51%, owned directly and unconditionally by one or more service-disabled veterans. For a corporation that means 51% of every class of voting stock and of all outstanding stock; for an LLC or partnership, 51% of each class of member or partnership interest (13 CFR 128.12).
What does 'unconditional' ownership mean?
Ownership that is not subject to any conditions, executory agreements, options, or other arrangements that could cause the veteran to lose the majority interest. Buy-sell agreements, stock options, or convertible instruments held by non-veterans that could presently divest the veteran's 51% make ownership conditional and disqualify the firm.
Can a non-veteran be the CEO of an SDVOSB?
No. A service-disabled veteran must hold the highest officer position and control both day-to-day operations and long-term decision-making (13 CFR 128.13). A non-veteran may hold other senior roles, but cannot have actual control of the company.
Does the veteran have to work at the business full-time?
Yes. The controlling veteran must devote full-time to the business during its normal hours of operation. Outside employment that prevents the veteran from controlling daily operations is disqualifying (13 CFR 128.13(i)).
Primary Sources
Self-audit aid, not legal advice. SDVOSB rules are still settling after the 2023 transfer of certification to the SBA, and federal acquisition dollar thresholds are periodically adjusted for inflation — verify current figures and procedures against the cited authority and your contracting officer before acting.
Change log (1)
- LaunchedPublished printable, source-cited self-audit checklists for SDVOSB ownership & control, the limitations on subcontracting, joint ventures, the VetCert application package, recertification & status maintenance, and set-aside bid readiness — each with an ItemList of the checks plus FAQPage, Dataset, and BreadcrumbList structured data, primary-source citations, and cross-links into the regulation explainers, how-to guides, glossary, FAQ, and calculators.