Trusts have become a popular tool to facilitate Ownership for purposes of compliance with the requirements of the B-BBBE (Broad-Based Black Economic Empowerment) Act. It is however important that Companies take note of the requirements for recognition of such a Trust in an Ownership transaction.
It is important to understand that a trust is seen as a Broad Base Ownership Scheme and as such to ensure that black people effectively own and control the ownership rights held through a Trust, The Codes of Good Practice provide rules for the Trusts, which are noted below:
- The beneficiaries must be named clearly. A written record of the names of the beneficiaries or the use of a defined class of natural persons satisfies the requirement for identification;
- The trustees must have no discretion to change the beneficiaries;
- At least 50% of the trustees must be black, of which 25% must be black female;
- The chairperson must be independent;
- Audited financial statements of the business must be reviewed to ensure that the total expenses do not exceed 15% of the total value received by the trust in that year;
- The rules of distribution must define that more than 85% of the economic interest is being allocated to black people;
- The trust must be represented and must play an active role as a shareholder;
- The trust deed must define the beneficiaries and the proportion of their entitlement. A written record of fixed percentages of entitlement or the use of a formula for calculating entitlement satisfies the need for defining the proportion of benefit;
- The trustees must have no discretion to change the abovementioned terms; and
- On winding-up or termination of the trust, all accumulated economic interest must be transferred to the beneficiaries or to an entity or to an entity representing the interest of the participants or class of beneficiaries.
Should the trust not comply with all the requirements as stated above, the verification agency will not be able to take the ownership held by the trust into consideration and no points will be allocated towards the ownership held by the trust.
As the trust is seen as the shareholder, the percentage shares held by the trust must also be paid off in line with the graduation factor. The trust will have all the same rights as any other shareholder and there must be no restrictions on the trust’s ownership. The black ownership is determined by the beneficiaries and for a trust to qualify at least 85% of the beneficiaries needs to be black people as defined by the Codes of Good Practice.
One of the most important points with a trust is that the trustees, as well as the beneficiaries, are at all times informed as to the rights vested in the trust.
Before embarking in the registration of a trust please contact your legal advisor so that they can work through the trust deed and ensure everything is as required.
ABOUT THE AUTHOR
Seshni Ramalingam obtained her LLB degree from the University of KwaZulu-Natal in 2014 and is an admitted Attorney. She joined SEESA as a BEE Legal Advisor in September 2016.