We get asked this question frequently: I’m selling my business (or buying one). Is the diversity certification transferable? There is no short yes or no answer, the reality is that it depends on the type of certification held and who is purchasing the business.
What’s actually being certified? The certification process is two-fold. 1) The business itself is being certified as having the capability to provide its products and/or services. Our favorite example to use is a pretzel maker — during application review and site visit the certifying agency will verify that the business has the expertise, equipment, staff and back-office support needed to produce its end product, a pretzel. 2) The business is being certified as being at least 51% owned, operated, and controlled by a SDMWVLGBTBE (Small Disadvantaged or Disabled, Minority, Women, Veteran, Lesbian, Gay, Bisexual or Transgendered Business Enterprise) owner(s) who possesses the knowledge and skill to run the business applying for certification.
This means that the business’s diversity certification is reliant on its owner(s).
All certifiers require that any major changes to the business be reported (in writing with supporting documentation) within 30 days. Major changes include:
- Business Structure (i.e. a sole prop becoming an LLC)
- Management and/or Control of the Business
- Work Capabilities
An instance where a certification cannot be maintained: A business is certified as veteran owned and a non-veteran purchases more than 49% of the business.
An instance where a certification is eligible* to be maintained: A business is certified as minority owned and another person designated as a minority purchases the business.
* We say eligible because certifiers will not automatically approve new ownership. The new owners must demonstrate the ability to run the business and the supporting documentation MUST illustrate that the business remains at least 51% owned, operated, and controlled by a SDMWVLGBTBE owner(s).
If you’re looking to buy or sell a company where diversity certification is considered an asset of the business, please exercise due diligence. Check with the certifying agent(s) to make sure that you understand their rules for maintaining the business’s certified status.