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On May 16, 2023, Horizon Marketing, Inc. filed an appeal with the Small Business Administration following the denial of its application for Service Disabled Veteran-Owned Small Business (SDVOSB) designation. This denial is based on concerns about ownership and control issues raised by the SBA, which appellants dispute. They argued that the denial was made in error and sought reversal by filing suit with the Board of Trial and Appeals.
Ownership structure and certification application
Mr. Robert R. de la Torre (a disabled veteran) and Ms. Yvonne A. de la Torre (a non-veteran) represent appellant Horizon Marketing, Inc., a California-based company, He is the owner of “Horizon”.
Horizon applied for SDVOSB certification from the SBA on April 20, 2023. According to appellant’s stock ledger, 510 shares were issued to Mr. Robert R. de la Torre, a service-disabled veteran, on November 9, 2022. The remaining 490 shares were issued. To Mrs. Yvonne A. De La Torre, a non-veteran.
Appellant informed SBA in a letter dated May 2, 2023 that the shares were held in trust and were not directly owned by De La Torres. Additionally, according to the March 2023 board meeting minutes, the appellant has two directors, Mr. and Mrs. De La Torre.
The appellant provided a copy of the amended articles of association and amended articles of association dated April 27, 2023. These articles of incorporation initially set the number of directors at two, but provide that this can be changed by amendment. It stipulates that directors must be natural persons, but they do not necessarily have to be shareholders. In addition, the articles of incorporation include provisions regarding the removal of directors, allowing them to be removed with or without cause. A quorum for a board of directors is defined as a majority of the total number of directors.
Additionally, appellant filed an “Amended and Restated Declaration of Trust” regarding the De La Torre Family Revocable Trust. The trust document indicates that Robert R. De La Torre and Yvonne A. De La Torre will serve as co-trustees. The term “Trustee” in the document refers collectively to both individuals. The Trust Documents provide a definition of “Trust Property” as assets held within the De La Torre Family Revocable Trust. Additionally, the trust document outlines the powers granted to the trustee, including the ability to sell, transfer, exchange, and manage trust property.
Grounds for denial
The SBA’s initial denial of Horizon’s SDVOSB certification was based on Appellant’s failure to meet certain regulatory requirements. Specifically, appellants failed to provide sufficient evidence that one or more service-disabled veterans had direct ownership of at least 51% of the stock, and therefore Failure to demonstrate full control of the service-disabled veteran. company.
An important factor in the SBA’s decision was the concern that Mrs. de la Torre, who is not a veteran, could exercise negative control over appellant. This raised questions regarding the potential influence of non-veterans in the decision-making process and overall management of the business, and ultimately led to the appellant’s denial of certification.
Appeal to OHA
Horizon Marketing, Inc. challenged the Small Business Administration (SBA) decision and filed an appeal with the Office of Hearings and Appeals (OHA). The company claims Robert R. de la Torre, a disabled military veteran, maintains control of its board of directors as a majority shareholder. They also argue that the trust does not materially change Mr. Delatorre’s ownership, as he still directly owns 51% of the company.
However, OHA found no merit in the appeal and upheld the SBA’s decision. OHA cited two main reasons for denying certification: negative control by non-veterans and lack of direct ownership by service-disabled veterans. OHA determined that the trust did not meet the requirements of § 128.202(a) because one of his co-trustees was not a service-disabled veteran.
Additionally, OHA found that the trust document gave the Delatorres equal rights, undermining the appellant’s argument that Mr. Delatorre retained unilateral control. OHA also noted that appellant’s bylaws provided for the presence of Mrs. De La Torre, who is not a veteran, in establishing a quorum and making decisions for the board, constituting negative control. .
In light of these findings, OHA dismissed the appeal because appellant failed to demonstrate error of fact or law in SBA’s original decision.
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