“A recent case demonstrates the difficulties in obtaining SDVOSB status as a franchisee. In the case, the SBA’s Office of Hearings and Appeals held that the Center for Verification and Eligibility had correctly denied a company’s SDVOSB application because, in the eyes of the CVE and SBA, the terms of the franchise agreement impeded the veteran’s control of the company.
OHA’s decision in The Hope Cos, LLC, SBA No. CVE-204-A (2021) involved the SDVOSB application submitted by The Hope Cos, LLC, a professional and leadership coaching business. The company was run as a franchise under a ten-year franchise agreement between the Hope Cos, LLC and a franchisor, whose name was not released in OHA’s published decision…”
“The CVE denied The Hope Cos’ SDVOSB application. The CVE noted that 13 C.F.R. 125.13 requires that a service-disabled veteran control the management and daily business operations of an SDVOSB. The CVE found that “Mr. Hope does not fully control the daily business operations of [The Hope Cos], due to provisions in the Franchise Agreement.” The CVE noted, for example, that because the franchisor’s permission was required for advertising, “Mr. Hope cannot fully control this aspect of daily business operations.” The CVE also wrote that the franchise agreement “allows [the franchisor], a non-SDVOSB, to exert actual control over” the Hope Cos, contrary to the “control” requirements for SDVOSBs.
The Hope Cos appealed the CVE’s decision to OHA, arguing that the denial of the application was improper.
OHA reiterated that an SDVOSB must be controlled by one or more serice-disabled veterans. It concluded:
CVE identified numerous terms within the Franchise Agreement which restrict Mr. Hope’s ability to fully control the “daily business operations” of Appellant, including provisions related specifically to Appellant’s marketing, production, sales and administrative functions; to the supervision of Appellant’s executives; and to the implementation of business policies. These provisions within the Franchise Agreement improperly limit Mr. Hope’s ability to control various aspects of Appellant’s daily business operations. CVE thus did not err in denying Appellant’s application for verification as an SDVOSB…” Read the full article here.
Source: Franchise Agreement Terms Sink Company’s SDVOSB Application – By Steven Koprince, November 18, 2021. SmallGovCon.
