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The impact of the graduation factor in order to comply with the Ownership Element

The impact of the graduation factor in order to comply with the Ownership Element

The Amended Broad-Based Black Economic Empowerment (B-BBEE) Codes were published on 11 October 2013 and came into operation within 12 months from the date of publication. Many companies have been forced into restructuring so they will comply with the ownership requirements of the Amended Codes.

When the new Amended Codes were introduced, a new concept of priority elements with sub-minimum requirements was also introduced. The sub-minimum requirement for the Ownership Element is 40% of the net value based upon the time based graduation factor. If this sub-minimum is not reached, the discounting principle will be applied to the entities.

The graduation factor prohibits entities, with not a relative big profit margin, to declare sufficient dividends or profits for the repaying of the loan account according to the time based graduation factor which provides for the reduction of debt attributable to the economic interest held by the black participants.

Should you thus consider looking into the Ownership Element, ensure that the repayment of the shares are in line with the graduation factor as stated below:

  1. 10% of black shareholder’s debt should be paid by the end of year 1;
  2. 20% by the end of year 2;
  3. 40% by the end of year 4 (from day 1 of year 3 to the end of year 4);
  4. 60% by the end of year 6 (from day 1 of year 5 to the last day of year 6);
  5. 80% by the end of year 8 (from day 1 of year 7 to the last day of year 8); and
  6. 100% by the end of year 10 (from day 1 of year 9 to the end of year 10).

ABOUT THE AUTHOR

Dominique van Deventer has been a SEESA BEE Legal Advisor for the past 13 months. He obtained his LLB degree from the University of the Free State.

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