On December 27, 2016, the SBA Correct/Clarified its Joint Venture Profit Rules that Accompany the Mentor Protégé Changes to All Programs Eligible to Participate

By: Christine V. Williams on 01/01/2017

On October 19, 2016, the SBA issued a correction pertaining to 8(a) joint venture profits, which clarified 13 CFR 124.513 in that populated joint ventures were eliminated, which, in turn, disallowed profits commensurate with the ownership interest.  81 FR 71981.  As such, the joint venture rule now states that the 8(a) Participant in a joint venture must receive profits from the joint venture commensurate with the work performed by the 8(a) Participant.

On December 27, 2016, the SBA clarified/corrected the language that applied to other programs that recently allowed other small business firms to participate in the mentor protégé programs, in addition to the 8(a) firms.  One of the goals of the SBA in enacting the programs was to make them simpler to use by making the program rules similar to each other.  Accordingly, on December 27, 2016, the SBA clarified its rules as to profit sharing for the additional mentor protégé programs.  That is, the same language that SBA corrected in the 8(a) regulations is also is explicitly applied to all small mentor protégé programs, including Service-Disabled Veteran-Owned, Women-Owned and HUBZone small business programs by this correction/clarification. SBA’s intent was for profits to be commensurate with the work performed by each member of the joint venture. These rules currently state that in the case of a separate legal entity, the firm must receive profits commensurate with their ownership interests in the joint venture, which is contrary to SBA’s intent. Consequently, SBA is correcting §§ 125.8(b)(2)(iv), 125.18(b)(2)(iv), 126.616(c)(4) and 127.506(c)(4) to the make the rules consistent with 124.513(c)(4) and across all programs. Here is the link to the Federal Register:  https://www.gpo.gov/fdsys/pkg/FR-2016-12-27/pdf/2016-30873.pdf