Clarification on the economic consequences of B-BBEE ownership rules

CLARIFICATION ON THE ECONOMIC CONSEQUENCES OF

B-BBEE OWNERSHIP RULES

By Quintus Myburgh
 

Dear employer

On 17 May 2021, the Minister of the Department of Trade, Industry and Competition, Mr Ebrahim Patel issued a Practice Note on ownership rules for Discretionary Collective Enterprises, which includes the recognition of Employee Share Ownership Programmes (ESOPS), Broad-Based Ownership Schemes (BBOS) and Trusts.
 
Ownership, as it relates to B-BBEE, has been the most contentious and most cumbersome element of the B-BBEE scorecard to implement.

The Practice Note’s preamble acknowledges the existence of significant differences of opinion and varying interpretations between the regulators and major entities in the B-BBEE space, and how ownership structures like Discretionary Collective Enterprises should be considered for ownership purposes under the Codes.
 
These differences of opinion have been affecting decisions of firms and clarity was required, especially where structures differ from the traditional model of share ownership being held directly or indirectly to the name and for account of individuals from the designated groups.
 
The Minister, having sought legal advice, issued the Practice Note to clarifying the following:

• A defined class of black beneficiaries satisfies the ownership provisions;
• that specific beneficiaries need not individually be identified, provided the Discretionary        Collective Enterprises comply with them provisions in the Practice Note;
• in addition to cash distributions, in-kind also qualifies as ‘Economic Interest’;
• the qualification of minor beneficiaries;
• measurement of voting rights exercised by a fiduciary on behalf of the participants; and
• reporting requirements by JSE-listed companies.

As a result, ESOPs (including evergreen ESOPs, which provide everlasting benefit) or worker ownership schemes, which provide a benefit for current and future black workers of the firm, or BBOS which provide benefits for certain designated groups, such as black students as recipients of bursaries, can satisfy the ownership requirement under the Codes.
 
These provisions provide greater clarity for companies who have either effected or plan to effect employee share ownership plans or broad-based ownership schemes.
 
Click here to view the Practice Note to be used as a guide for you or the B-BBEE verification agency, which provides further clarity on the general classification, measurement and evidentiary requirements.

Quintus Myburgh is the Operations Manager of the National Employers’ Association of South Africa (NEASA).

For more information:
NEASA Media Department
media@neasa.co.za