What You And Your Business Need To Know About BBBEE And Black...

What You And Your Business Need To Know About BBBEE And Black Ownership


Compliance is a turnover based consideration. Businesses are categorised into 3 levels for this purpose namely; Exempt Micro Enterprises (“EME”), Qualifying Small Enterprises (“QSE”) and Generic enterprises.

Related: BBBEE Compliance: Why it is Relevant Now!

EMS’s compliance is much more lenient than the rest as scoring and issuing a certificate is done by way of an auditor’s certificate or affidavit. QSE’s on the other hand have relieved compliance in terms of the scorecard while generic businesses require full scorecard compliance (without any relief).

EME Turnover ≤ R10 million
QSE Turnover of R10-50 Million
GENERIC Turnover > 50 Million

Considerations for QSE’s

Under the previous codes QSE’s could elect 4 out of the then 7 elements to be scored on, they are now required to be compliant with all 5 scorecard elements. The elements are: Ownership, Skills development, Enterprise and Supplier Development, Socio Economic Development and Management Control.

The new codes list three priority elements:

  • Ownership
  • Skills development
  • Enterprise and Supplier Development

A QSE must achieve 40% of the points for two of the three priority elements, with Ownership being a compulsory one. Non-compliance with the thresholds for the above priority elements will result in a penalty by one level on the QSE scorecard.

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Related: Black-Owned Businesses Need BEE Compliance


This is by far the most contentious of all the elements. In terms of the new codes, an enterprise must achieve at least 40% of the net value targets in order to comply with the priority element requirements. This, according to verification agencies, equates to a minimum 10% black shareholding or ownership status.

This can be achieved through implementing a number of strategies, including without limitation:

  1. A traditional share sale or partnership agreement (taking in a black partner)
  2. Share sale or buy in on a loan account basis (giving effect to the above on a non-cash basis)
  3. Establishing an employee share scheme (Trust)
  4. Entering into a joint venture agreement with a (black owned) business or black person.

In my opinion, it is not advisable to enter into a share sale or partnership agreement whether on loan payment basis or not, where a proper due diligence has been not been conducted. This includes but is not limited to ensuring that there is a shared vision for the business and general values. This in addition to contributable skill and the usual elements considered when negotiating a business buy in.

In addition, the taxable consequences of the transaction should also be appropriately considered and suitably structured.

As for employee share schemes, these are not the always the “right fit” for every business, in my opinion. These aim to the black employees of the business concerned by making them minority shareholders or owners in the business.

These are typically set up in trust structures that need to comply with certain BBBEE specific requirements. The problem is that trusts are generally expensive vehicles from an income tax perspective.

Related: Let BBBEE Make (and Not Break) Your Business

In addition, these require their own (independent) management from the business itself. Be that as it may, where these are appropriately structured they create invaluable vehicles to motivate and retain valuable black staff. These as with appropriately strategic management structures may also serve a valuable purpose in grooming the next generation of owners and managers in businesses.

Joint ventures on the other hand, have not had much success statistically, often in my view as a result of the agreements not being well enough put together to avoid unintended liability arising between the parties.

As such, it is important to consider an ownership compliance strategy that suits your vision and specific business needs best and once identified it should be implemented by a suitably qualified team of professionals.

Nicolene Schoeman-Louw
Nicolene Schoeman – Louw is an admitted attorney of the High Court of South Africa, as well as being a Conveyancer, Notary Public and Mediator. She is the Managing Director of Schoemanlaw Inc Attorneys, Conveyancers and Notaries Public (Schoemanlaw Inc Attorneys) in Cape Town. Visit www.schoemanlaw.co.za for more information or email enquiries@schoemanlaw.co.za

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