The topic of equity ownership in South Africa is usually the nightmare of corporate stress and endless confusion. Let’s break down the ownership element of the B-BBEE scorecard for a clearer view on the road ahead.
You might ask, what is ownership anyway? Well, in the world of B-BBEE, ownership is a priority element of the B-BBEE scorecard. This means that if you don’t get at least 40% of the priority target, your overall scorecard gets hit with a penalty level. Think of it like a corporate game of musical chairs, but the chairs are company shares and the music is played by the Department of Trade, Industry and Competition (DTIC). When the music stops (verification time), you will need to prove exactly who is sitting in those chairs.
To score points in the ownership category, verification agencies look at three specific areas. It’s not enough to just hand over a share certificate; you need to pass the ultimate document test.
The first area is voting rights. This gives each Black shareholder the power to make a decision. You will not be able to just put someone’s name on a piece of paper; they need to turn up for board meetings and vote on whether to buy the fancy coffee machine or not.
The second area is economic interest. This allows each Black shareholder to receive a share of the profits. If the company makes money, the Black shareholders must be included in the distribution of dividends paid into their bank accounts. There is no paying them on a gamble or a promise of future payment opportunities, nor with corporate high fives.
The last category reviewed is net value. This is the rand value of the shares owned by the Black shareholders less any debt owed for purchasing the shares. This is where the math gets wild. If a shareholder bought shares using a loan, they only get full points once that loan is paid off. It’s like buying a house – you don’t truly own it until the bank stops chasing you.
There are popular strategies for overcoming the burden of incorporating Black ownership into your business, but these come with their own disadvantages. For instance, let’s say that you decide on the broad-based strategy (ESOPs and trusts) by setting up an employee share ownership plan (ESOP) or community trust. This looks amazing on paper because you are empowering hundreds of people. The downside? Trying to explain to 500 factory workers why their dividend this year is minimal because the company spent all its money on a new generator.
Another popular strategy is finding a strategic partner. A high-profile BEE partner. This is the corporate equivalent of dating a celebrity; they bring influence and power along with instant scorecard points. However, they are also very busy and may not show up to your Tuesday sales alignment meeting.
Whatever you decide on, you cannot fake it. Fronting is the ultimate sin for B-BBEE. Putting a Black South African person’s name on the registration documents as an owner, while keeping all the money and decision-making power for yourself, is a fast track to jail time and massive fines. If your major shareholder is the office cleaner who has no idea what a balance sheet is and still earns minimum wage, you are going to have a very bad time during your B-BBEE audit.
The best option at this point would be to contact BEE-Equal. BEE-Equal has the means and strategies tailored to suit your business needs while keeping you and your money safe when it comes to B-BBEE solutions. It’s the sure way to plan what comes next for your B-BBEE transformation.
Contact Bee-Equal
Telephone: (011) 453 4011
E-mail: info@beeequal.co.za
Website: www.beeeequal.co.za
Address: Unit 5, Bedfordview Office Park, 3 Riley Road, Bedfordview
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