PROPOSED CHANGES TO B-BBEE CODES TO ALLOW AUTOMATIC RECOGNITION FOR GENERIC ENTITIES
On 29 March the DTI published a fairly groundbreaking proposal to amend the BEE Codes of Good Practice in order to allow businesses with a turnover of R50 million or more to receive automatic Level 1 or Level 2 status, based on their ownership credentials.
Previously, smaller entities with turnovers of less than R50 million (QSE’s or EME’s) could qualify for such automatic recognition, provided that they were at least 51% (for Level 2 recognition) or 100% (for Level 1 recognition) black-owned. This meant that they only had to comply with the Ownership element of BEE, to the exclusion of all the other elements, and still receive an excellent BEE rating.
The new proposal would see larger black-owned businesses benefit from the same preferential treatment and is quite an advantage, seeing as the scorecard for larger entities is substantially more difficult to comply with. If the proposal, which is currently out for public comment, is adopted, qualifying large businesses would need to obtain a verification certificate on the Ownership element only, and will not have to comply with any of the other elements, such as Enterprise and Supplier Development, Management Control or Skills Development – potentially saving them millions of Rands in respect of compliance costs.
The proposal does have significant limitations. Organisations using more complex ownership structures will by and large be excluded from this potential benefit, as only structures where there is an actual ownership flow-through to black people of at least 51% will qualify – the usual limited recognition for things like modified flow-through (where 51% black ownership is deemed to be 100%); continued recognition on the sale of shares by black people (sometimes mistakenly called the “once empowered, always empowered principle”); and the use of private equity funds, are all excluded.
Another significant change being proposed includes new guidance on the process to be followed when measuring the BEE credentials of unincorporated joint ventures.