Do You Qualify as a 'Minority-Owned Business'?

Minority-owned businesses may be entitled to government benefits and special programs, but not every business will qualify.

And claiming to be a minority-owned business when you're not is a terrible idea, as Moretech American Corporation has learned the hard way. Federal prosecutors allege Moretech passed off a shell company as a minority-owned firm in order to land a government contract; Moretech has agreed to pay $3 million to settle those claims, the New York Daily News reports.

So what exactly qualifies a business as a minority-owned business?

What's a Minority?

Each minority business program is allowed to define "minority" in its own way.

The National Minority Supplier Development Council (NMSDC) -- a group which reviews and certifies minority-owned businesses -- defines "minority group members" as U.S. citizens who are Asian, Black, Hispanic, and Native American. More specifically, the NMSDC requires eligible members to be U.S. citizens with at least "25 percent" Asian, Black, Hispanic, or Native American heritage.

The U.S. Small Business Association's (SBA) 8(a) Business Development Program allows socially and economically disadvantaged entrepreneurs to get access to government contracts. The SBA presumes that certain minority groups can qualify for its 8(a) Business Development Program -- African Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and "Subcontinent Asian Americans."

Though the SBA and others are open to considering minority groups from all areas, the categorization is mostly based on racial minority status.

Other Common Questions

• What Proof Do You Need? It may seem taboo, but groups like the NMSDC may require business owners to show documentation of their racial background in order to be certified as minority-owned businesses. These procedures may be in an attempt to curb bad actors who misrepresent themselves as "minority-owned" in order to snag lucrative government contracts, as Moretech allegedly did with its shell company.
• What Percentage of Minority Ownership Is Required? At least 51 percent. Both the SBA and NMSDC require an eligible business be owned 51 percent by minority individuals.
• Do You Need to Be 'Certified'? According to Inc., having NMSDC certification may attract private-sector buyers and minority-owned suppliers, but it is by no means required.
• How Do You Apply? To apply for NMSDC certification, contact your local NMSDC Regional Council. To apply for the 8(a) Business Development program as a minority-owned business, follow the steps listed on the SBA's website. Be warned, even when applying online, this process will be time consuming.

If you have questions about your eligibility as a minority-owned business, consult an experienced business attorney in your area.

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Related Resources:

• Find Business & Commercial Lawyers Near You (FindLaw's Lawyer Directory)
• How certifications can help grow your business? (Minority Business Development Agency)
• Why Small Biz Should Love Government Contracts (FindLaw's Free Enterprise)
• Does Race Affect Small Business Funding? (FindLaw's Free Enterprise)
• Gap's Sikh Ad Sparks Debate Over Diversity (FindLaw's Free Enterprise)