Those of you secretly hoping for a time warp back to the early years of the new millennium, your wish has been granted. After nearly two decades apart, Ben Affleck and Jennifer Lopez are engaged, again. Personally, I was hoping for the jarring dial tone sequence of a 56k modem to make a resurgence, but we don’t all get what we want.
The engagement story has many angles, few of which matter to a government contracts attorney. What the story does highlight, however, is the very real affiliation possibility for spouses with independent business interests. So, let’s indulge in a little vicarious living. Ben and Jennifer’s relationship is ripe for investigating familial affiliation.
Size & Affiliation
Affiliation is a big topic with a lot of nuances. In broad terms, affiliation refers to the ability of one individual or entity to control another. For federal procurement purposes, the SBA identifies several relationships that may affiliate two or more businesses. The touch stone of each is control.
The practical consequence of affiliation is an increase in business size. The size of a small business includes the size of its affiliates. Thus, affiliation can quickly turn a small business into a large one. This can result in lost awards or the removal from SBA programs.
All the ins and outs of affiliation are too big to cover in a single post. Instead, this post will take on a more manageable topic—affiliation between businesses owned by close family members.
Affiliation & Family Business
The SBA’s regulations presume that businesses owned or controlled by close family members that conduct business with one another are affiliates. The notion is that family members will not take actions that would harm the business interests of their relatives. As such, there is a degree of control exerted by family members who do business together.
So, who is close family under the regulations? In short, nuclear family. The SBA’s regulations identify “married couples, parties to a civil union, parents, children, and siblings” as the relationships that can give rise to affiliation. The SBA’s regulations also clarify that “[o]ther types of familial relationships are not grounds for affiliation on family relationships.”
With respect to business connections, the SBA identifies subcontracting and joint venturing as examples that could result in familial affiliation. Providing or sharing loans, resources, equipment, locations, or employees are also listed as business conduct that can result in affiliation between family-owned firms.
In short, if a spouse, parent, child, or sibling each own a business and are collaborating with one another, familial affiliation will be presumed.
Now, family affiliation is presumptive. The SBA will assume affiliation exists if close family members control two businesses and conduct business with one another. That conclusion may be rebutted, however, demonstrating “a clear line of fracture between the concerns.” This occurs where there is substantial disunity between family members, or where there is no business relationship between the family-owned firms.
The Affiliation of Bennifer
Now to the good stuff. Like a law professor trying to keep the hypothetical on their exam interesting with topical references, I’m going to use Ben Affleck and Jennifer Lopez’s engagement to highlight some of the subtleties of family affiliation.
Before diving in too deep, let’s acknowledge reality. Ben and Jennifer are only engaged. Engaged couples are not included among the close family relationships identified by the SBA as giving rise to affiliation. Thus, until they both say “I do,” there is no risk of family affiliation.
This reality kills the vibe of this post, however, so let’s gloss over that detail and plunge headlong into some hypotheticals. We’re going to go through the decades to see how things change based on the nature of the relationship.
To set the stage (acting pun), both Ben and Jennifer are successful business-people. Ben co-owns a production company with Matt Damon called Pearl Street Films. For purposes of this post, we’ll assume he controls that business. Jennifer is the founder of JLo Beauty, among other ventures. Given the name, we’ll also assume she controls the business.
2000s
Let’s pick up the couple’s relationship in 2002. They are madly in love and get engaged. We’ll assume they also get married. Pearl Street Films is working on a project and contracts with JLo Beauty to provide makeup for the film.
Is there family affiliation? Yes. Ben and Jennifer are spouses, which is one of the specific family relationships identified by the SBA. Additionally, Ben and Jennifer own and control Pearl Street Films and JLo Beauty, respectively, which are doing business with one another. This is a classic case of familial affiliation.
2010s
Ben and Jennifer are on the rocks. Ben goes onto MTV and bad mouths Jennifer Lopez’s cooking. In return, Jennifer gives a tell all interview to Entertainment Tonight and states Ben is no longer in her life. Its a whole thing. They separate and pursue other people. Nevertheless, Pearl Street Films is working on a new project and contracts with JLo Beauty to provide makeup for the film.
Is there family affiliation? Likely no. While the contractual ties are the same, the personal relationship between Ben and Jennifer is very different. Now estranged, neither party would feel guilty putting its needs ahead of the other. In short, the control worries are eliminated. Accordingly, Ben and Jennifer could demonstrate a clear line of fracture, contractual relationship notwithstanding.
2020s
Reconciliation is in the air. Ben and Jennifer are going to give it a go, again. They’re happily married, again. Pearl Street Films is working on yet another project, but hasn’t done business with JLo Beauty in years. In need of makeup specialists, it subcontracts with an unrelated makeup company.
Is there family affiliation? No. This circumstance mirrors the family situation in the early 2000s example. Ben and Jennifer are spouses who control two businesses. But, neither of their businesses are presently contracting with one another. While their rekindled romance has eliminated the family relationship fracture point, the fact that the businesses do not conduct business with one another creates a new fracture. As such, Pearl Street Films and JLo Beauty are not affiliates.
Wrapping Things Up
As the Ben Affleck and Jennifer Lopez examples demonstrate, family affiliation is highly fact specific. Changes in both personal and profession relationships have a significant impact on the affiliation risk.
More practically, familial identity of interest can pose significant issues for successful family businesses. Small businesses often support one another. Whether it be loans, contracts, or shared facilities, support provided by close family members can quickly result in affiliation under the SBA’s regulations. For those businesses nearing their size threshold, this affiliation can have significant eligibility consequences.
As a final note, I learned way more about Ben Affleck and Jennifer Lopez than I ever need in writing this post. Make my sacrifice worthwhile by subscribing to our mailing list and checking out our other content.