Because of the wide range of benefits that Broad-Based Black Economic Empowerment (BBBEE, or BEE for short) compliance can confer, many businesses in South Africa are looking for ways to achieve a good rating on the scorecard. Level 1 is the highest ranking (there are eight levels in total), and the goal is to get as close to this as possible. The higher your score, the better your chances of preferential procurement and success in government tenders, and the bigger your contribution to the socio-economic transformation of the country. There are many different ways to boost your BBBEE rating, but one that is key is focusing on the ownership category of the scorecard. This, as explained below, is where Trusts can be helpful.
For businesses with annual turnover of more than R10 million (Qualifying Small Enterprises and Generic Enterprises), BBBEE compliance requires attention to five areas, as outlined by the Codes of Good Practice. Under these Codes, the revised versions of which came into effect in 2015, the areas are: ownership, management control, skills development, enterprise and supplier development, and socio-economic development. Each section is weighted differently, with ownership being a priority area and holding the potential for significant score improvement.The ownership category on the BBBEE scorecard takes into account the way a business
The ownership category on the BBBEE scorecard takes into account the way a business has addressed the control, economic interest and net equity interest of black staff members. It measures the overall equity they have in the company. Some companies, reluctant to change but eager to get a good BBBEE rating, have resorted to the criminal practice of fronting, where their paperwork may indicate significant black ownership, but the employees listed are not even aware of it, or are only passively involved.
There are many legitimate ways in which businesses can address a dearth of black ownership. One highly effective example is the formation of a BEE Employee Trust (BET). This is an employee share ownership scheme that benefits both the company and its workers and can add Direct Ownership points to the BBBEE scorecard. When creating the BET, a large number – or even all – of the employees usually become beneficiaries.
However, for a BET to qualify for ownership points, it must meet certain requirements. For a start, the Trust must get at least 25.1% of the share capital of the company. The Trust must be properly formed by writing a trust deed and registering it at the deeds office. This deed must set out the name of the Trust, the purpose, the beneficiaries and their benefits, the trustees and their duties, and the shareholding that will be transferred.
The BET must comply with guidelines on payouts, access to finance, and various administrative rules. Dividends, when declared, have to be paid out annually over and above regular bonuses, and a representative from the beneficiaries must attend all directors’ meetings and hold at least one vote.While the paperwork may seem daunting and all of the i’s and t’s have to be carefully
While the paperwork may seem daunting and all of the i’s and t’s have to be carefully dotted and crossed, a BET is a popular, practical way of meeting the BBBEE needs of businesses and their employees. Beneficiaries do not become individual shareholders, meaning that upon resignation from the business, they can simply be removed from the list of the Trust. Thus, companies have nothing to lose.
For more information on how a BET works, get in touch with us today.