As clients become more familiar with the BEE process, we often receive the question of whether black ownership will influence a company’s BEE affidavit and, if so, what the effect will be.
Specific references will be made to the Code of Good Practice for this article. Although various similarities exist between the different sectors in terms of BEE, it is essential to contact your nearest SEESA BEE legal advisor regarding your specific industry and how ownership will impact your industry’s BEE affidavit.
Firstly, it is important to note that all companies with a turnover exceeding R10 million will have to comply with the following elements to reach a certain level. The company’s turnover will determine what priority elements need to be complied with, with ownership always being regarded as a priority element irrespective of the company’s turnover:
- Ownership (Priority);
- Management control;
- Skills Development (Priority);
- Enterprise and Supplier Development (Priority)
- (The above element comprise Preferential Procurement, Supplier Development and Enterprise Development)
- Socio-Economic Development.
A company with an annual turnover of below R10 million will be regarded as an exempted micro enterprise (EME). A company qualifying for an EME status will subsequently get a level 4 BEE recognition level, if the business has less than 51% black ownership, with minimal effort and purely based on the company’s turnover.
Business owners often wonder whether it would be beneficial to consider bringing in black ownership if the company already qualifies for an affidavit providing them with a good BEE recognition level (level 4). The short answer is “Yes”.
This is because even though you obtain a level 4 BEE recognition with 0% black ownership, you can easily achieve a level 2 with 51% black ownership and a level 1 with 100% black ownership, depending on the turnover.
An entity with an annual turnover exceeding R10 million but below R50 million with at least 51% black ownership will be able to obtain a level 2 BEE recognition level based on two aspects, namely ownership and turnover.
A company within the same turnover bracket with less than 51% black ownership will have substantially more planning and expenditures towards BEE compliance. That company will have to comply with the abovementioned elements to reach a certain level. Equally so, an entity with 100% black ownership within the abovementioned turnover bracket qualifies for a level 1 BEE recognition level based on ownership and turnover.
From the abovementioned, it is evident that having black ownership within an organisation, even when qualifying for an affidavit, may significantly increase your BEE recognition level.
Contact your nearest SEESA office for more information on how ownership will impact your industry’s BEE affidavit. Alternatively, SMS the word “SEESA” to 45776 for an expert legal advisor to contact you.
About the author:
Leonard Nieuwoudt is a SEESA Legal advisor and Admitted Attorney. He obtained his LLB and BCom Business Management degree from NWU.
Resources:
- Broad-Based Black Economic Empowerment Act 53 of 2003 as amended by Act 46 of 2013