BEE Partner, South Africa Economy Watch

Section 3.2 of Statement 102 provides the criteria for the sale of assets to qualify for recognition as an ownership alternative and achieve ownership points. The transaction must adhere to all the following criteria:

• It must result in the creation of a sustainable business opportunity for the Black party.
• It must result in the transfer of specialised skills or productive capacity to Black people.
• It must be sold to a separate entity that has:
• No unreasonable limitations on its clients or customers
• clients, customers or suppliers other than the measured enterprise that sold the asset.

• Any outsourcing relationship between the seller and associated enterprise (the BEE entity that purchased the asset from the seller) must be negotiated at arms length on a fair and reasonable basis.

The requirements form the basis of anti-fronting criteria. The transaction must be a sale of real assets capable of being a stand-alone business beyond the control of the initial measured entity.

If any of the above criteria are not achieved, the transaction will not qualify for recognition as the sale of assets. Accordingly, the measured business will not obtain recognition in terms of the ownership points.

Rentals, leases and licences

Section 3.2.4 of Statement 102 makes two specific exclusions. Licences, leases and rentals offer an interesting angle on recognition of the sale of an asset for recognition of ownership. Say an income- producing asset, for example, a haulage truck and trailer, is leased by a company to a Black party for a period of time. The Black party, as a consequence of the lease, may haul goods for profit for the duration of the lease.

Was a business asset sold to a Black party for the period of the lease, rental or licence? The government’s view is that it may not be recognised as the sale of an asset because there was no sale. A right is handed over for a specific period, which means it is not sustainable because the right will revert to the original owner at the end of the licence or lease.

Section 3.2.4.1 specifically excludes leases, licences or other similar legal arrangements not conferring unrestricted ownership from recognition as a sale of assets.

Franchising

The sale of a franchise by a franchisor to a franchisee is, arguably, the sale of an asset. Various options were reviewed in this regard. Essentially it meets the requirements of Section 3.2. However, the Codes do not recognise the sale of a franchise from a franchisor to a franchisee as the sale of an asset. The reason is that the franchisor would receive ownership points for something that is part of their normal business anyway. Therefore, Section 3.2.4.2 specifically excludes the sale of a franchise by the franchisor to a Black franchisee from recognition as a sale of an asset.

The scorecard as it stands does not specifically recognise the creation of franchises as a separate indicator on the scorecard. The unintended consequence of the non-recognition of the sale of company-owned outlets to Black franchisees is that nothing encourages the franchisors to sell to Black franchisees.

However, a franchisee selling the franchise to a Black party, that is, another franchisee, will qualify for recognition as a sale of assets, assuming it meets the requirements of Section 3.2.

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