[Code of Federal Regulations]
[Title 13, Volume 1]
[Revised as of January 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 13CFR121.103]

[Page 283-285]
           Subpart A_Size Eligibility Provisions and Standards
Sec. 121.103  What is affiliation?

    (a) General Principles of Affiliation. (1) Concerns are affiliates 
of each other when one concern controls or has the power to control the 
other, or a third party or parties controls or has the power to control 
    (2) SBA considers factors such as ownership, management, previous 
relationships with or ties to another concern, and contractual 
relationships, in determining whether affiliation exists.
    (3) Individuals or firms that have identical or substantially 
identical business or economic interests, such as family members, 
persons with common investments, or firms that are economically 
dependent through contractual or other relationships, may be treated as 
one party with such interests aggregated.
    (4) SBA counts the receipts or employees of the concern whose size 
is at issue and those of all its domestic and foreign affiliates, 
regardless of whether the affiliates are organized for profit, in 
determining the concern's size.
    (b) Exclusion from affiliation coverage. (1) Business concerns owned 
in whole or substantial part by investment companies licensed, or 
development companies qualifying, under the Small Business Investment 
Act of 1958, as amended, are not considered affiliates of such 
investment companies or development companies.
    (2) Business concerns owned and controlled by Indian Tribes, Alaska 
Regional or Village Corporations organized pursuant to the Alaska Native 
Claims Settlement Act (43 U.S.C. 1601), Native Hawaiian Organizations, 
or Community Development Corporations authorized by 42 U.S.C. 9805 are 
not considered affiliates of such entities, or

[[Page 284]]

with other concerns owned by these entities solely because of their 
common ownership.
    (3) Business concerns which are part of an SBA approved pool of 
concerns for a joint program of research and development as authorized 
by the Small Business Act are not affiliates of one another because of 
the pool.
    (4) Business concerns which lease employees from concerns primarily 
engaged in leasing employees to other businesses or which enter into a 
co-employer arrangement with a Professional Employer Organization (PEO) 
are not affiliated with the leasing company or PEO solely on the basis 
of a leasing agreement.
    (5) For financial, management or technical assistance under the 
Small Business Investment Act of 1958, as amended, (an applicant is not 
affiliated with the investors listed in paragraphs (b)(5) (i) through 
(vi) of this section.
    (i) Venture capital operating companies, as defined in the U.S. 
Department of Labor regulations found at 29 CFR 2510.3-101(d);
    (ii) Employee benefit or pension plans established and maintained by 
the Federal government or any state, or their political subdivisions, or 
any agency or instrumentality thereof, for the benefit of employees;
    (iii) Employee benefit or pension plans within the meaning of the 
Employee Retirement Income Security Act of 1974, as amended (29 U.S.C. 
1001, et seq.);
    (iv) Charitable trusts, foundations, endowments, or similar 
organizations exempt from Federal income taxation under section 501(c) 
of the Internal Revenue Code of 1986, as amended (26 U.S.C. 501(c));
    (v) Investment companies registered under the Investment Company Act 
of 1940, as amended (1940 Act) (15 U.S.C. 80a-1, et seq.); and
    (vi) Investment companies, as defined under the 1940 Act, which are 
not registered under the 1940 Act because they are beneficially owned by 
less than 100 persons, if the company's sales literature or 
organizational documents indicate that its principal purpose is 
investment in securities rather than the operation of commercial 
    (6) A protege firm is not an affiliate of a mentor firm solely 
because the protege firm receives assistance from the mentor firm under 
Federal Mentor-Protege programs.
    (c) Affiliation based on stock ownership. (1) A person is an 
affiliate of a concern if the person owns or controls, or has the power 
to control 50 percent or more of its voting stock, or a block of stock 
which affords control because it is large compared to other outstanding 
blocks of stock.
    (2) If two or more persons each owns, controls or has the power to 
control less than 50 percent of the voting stock of a concern, with 
minority holdings that are equal or approximately equal in size, but the 
aggregate of these minority holdings is large as compared with any other 
stock holding, each such person is presumed to be an affiliate of the 
    (d) Affiliation arising under stock options, convertible debentures, 
and agreements to merge. Since stock options, convertible debentures, 
and agreements to merge (including agreements in principle) affect the 
power to control a concern, SBA treats them as though the rights granted 
have been exercised (except that an affiliate cannot use them to appear 
to terminate control over another concern before it actually does so). 
SBA gives present effect to an agreement to merge or sell stock whether 
such agreement is unconditional, conditional, or finalized but 
unexecuted. Agreements to open or continue negotiations towards the 
possibility of a merger or a sale of stock at some later date are not 
considered ``agreements in principle'' and, thus, are not given present 
    (e) Affiliation based on common management. Affiliation arises where 
one or more officers, directors or general partners controls the board 
of directors and/or the management of another concern.
    (f) Affiliation based on joint venture arrangements. (1) Parties to 
a joint venture are affiliates if any one of them seeks SBA financial 
assistance for use in connection with the joint venture.
    (2) Except as provided in paragraph (f)(3) of this section, concerns 
submitting offers on a particular procurement or property sale as joint 
venturers are

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affiliated with each other with regard to the performance of that 
    (3) Exclusion from affiliation. (i) A joint venture or teaming 
arrangement of two or more business concerns may submit an offer as a 
small business for a Federal procurement without regard to affiliation 
under this paragraph (f) so long as each concern is small under the size 
standard corresponding to the NAICS code assigned to the contract, 
    (A) The procurement qualifies as a ``bundled'' requirement, at any 
dollar value, within the meaning of Sec. 125.2(d)(1)(i) of this 
chapter; or
    (B) The procurement is other than a ``bundled'' requirement within 
the meaning of Sec. 125.2(d)(1)(i) of this chapter, and:
    (1) For a procurement having a revenue-based size standard, the 
dollar value of the procurement, including options, exceeds half the 
size standard corresponding to the NAICS code assigned to the contract; 
    (2) For a procurement having an employee-based size standard, the 
dollar value of the procurement, including options, exceeds $10 million.
    (ii) A joint venture or teaming arrangement of at least one 8(a) 
Participant and one or more other business concerns may submit an offer 
for a competitive 8(a) procurement without regard to affiliation under 
paragraph (f) of this section so long as the requirements of 13 CFR 
124.513(b)(1) are met.
    (iii) Two firms approved by SBA to be a mentor and protege under 13 
CFR 124.520 may joint venture as a small business for any Federal 
Government procurement, provided the protege qualifies as small for the 
size standard corresponding to the NAICS code assigned to the 
procurement and, for purposes of 8(a) sole source requirements, has not 
reached the dollar limit set forth in 13 CFR 124.519.
    (4) A contractor and subcontractor are treated as joint venturers if 
the ostensible subcontractor will perform primary and vital requirements 
of a contract or if the prime contractor is unusually reliant upon the 
ostensible subcontractor. All requirements of the contract are 
considered in reviewing such relationship, including contract 
management, technical responsibilities, and the percentage of 
subcontracted work.
    (5) For size purposes, a concern must include in its revenues its 
proportionate share of joint venture receipts.
    (g) Affiliation based on franchise and license agreements. The 
restraints imposed on a franchisee or licensee by its franchise or 
license agreement relating to standardized quality, advertising, 
accounting format and other similar provisions, generally will not be 
considered in determining whether the franchisor or licensor is 
affiliated with the franchisee or licensee provided the franchisee or 
licensee has the right to profit from its efforts and bears the risk of 
loss commensurate with ownership. Affiliation may arise, however, 
through other means, such as common ownership, common management or 
excessive restrictions upon the sale of the franchise interest.

[61 FR 3286, Jan. 31, 1996, as amended at 62 FR 26381, May 14, 1997; 63 
FR 35738, June 30, 1998; 64 FR 57370, Oct. 25, 1999; 65 FR 30840, May 
15, 2000; 65 FR 35812, June 6, 2000; 65 FR 45833, July 26, 2000]