Cleared Contractor Organizations

Business Organization Requirements


A defense contractor should be legitimate business entity, have good reputation and practice ethical business practices. The company should prove that they are structured and a legal entity under the laws of the United States, the District of Columbia or Puerto Rico and have a physical location in the United States or territories. Such proof includes Articles of Incorporation, Stock Records, Minutes of Board Meetings, and Corporate by-laws. Legal entities include one or more of the following business structures:

Sole Proprietorship

A Sole Proprietorship is a business owned by one individual. The owner is in control of all equipment, supplies and assets of the business. As a result, they receive all the money earned. They control all decisions and are ultimately the one entity who can commit the business to decisions. The upside is that the owner receives all the benefits and earnings and has full control.

The down side to a sole proprietorship is that the owner is ultimately responsible for funding the business. They are also liable for any obligations that may extend beyond the business into personal assets. This could be tough if any lawsuits are brought up against the company. It’s possible that the owner could pay dearly for lawsuits stemming from business practices. Additionally, if the owner dies, so does the business. The business depends 100 percent on the owner’s involvement and the owner depends 100 percent on the business’ to succeed.

Partnership

Partnerships exist when two or more people, entities or businesses form a business entity. The partnership is a legal body put together for limited application. The partnership formed is independent of the individuals engaged in the partnership. The organizations that form a partnership are a new entity. Depending on the type of partnership, the new entity receives the rewards, benefits and liability of business decisions. Individuals are not liable.

Partners make the day to day decisions of the partnership. This works well when partners are of the same mind and have the same goals. It can be a frustrating experience when these goals are not clear, personalities conflict and creativity is stifled. Partners should outline the duties ahead of time to determine who is responsible for creativity, marketing, sales and other business decisions.

Corporation

A corporation is a business owned by one or more legal entities. The entities can be other corporations, businesses, individuals, or partnerships. The corporate entities are separate from the individuals who make up that corporation. Corporations offer the best legal protection as the corporation and not the members are accountable. All success and failure affects the corporation and not the individual. The owners and shareholders of corporations are those who own stocks. Each shareholder owns a percentage of the company depending on amount of stocks owned.

Decision making begins with the election of a board of directors. This board of directors determines the direction and company strategy. They hire and appoint company officers to take care of the day to day work. Presidents, Chief Operation Officers, Chief Executive Officers, Vice-Presidents and etc. are hired by the board of directors.

Limited Liability Company (LLC)

An LLC structure offers similar benefits and protection as a corporation and the individual in an LLC is protected much better than with a sole proprietorship. The company is controlled either by one or more owners. These owners can be individuals, corporations or other LLCs. The owners can control the company or the owners can appoint managers to control company operations.

An LLC can have a single owner and have all the business making decisions that come from a sole proprietorship as well as protection enjoyed by corporations. However, the LLC has a limited life cycle. If you form an LLC with others, any of the owners or designated managers can obligate the company. However, owners are not personally liable for business debts.

Key Management Personnel (KMP)-These are management or senior leaders who influence decisions regarding classified contracts. KMPs can be members of the board of directors, vice-presidents, directors or other upper level managers. Also, neither the company nor key managers can be barred from participating in US Government contracts. A review of Federal Acquisition Regulations (FAR) demonstrates the ethics and legal requirements of companies who wish to participate in these contracts.