BEE Partner, South Africa Economy Watch

The QSE Codes make no specific mention of the sale of assets. However, they do provide that unless otherwise stated, all the Statements under Codes 000 — 700 are applicable. The sale of assets was not developed with QSEs in mind as it developed from pressure from large mining concerns. It does present an interesting alternative to both generic and QSE businesses. Perhaps it is more relevant to larger QSE businesses but it should be retained as an alternative by anyone considering ownership contributions.

Essentially, the sale of assets allows a business to sell an asset, business or other equity instrument to a Black party and receive ownership recognition for that sale. Not surprisingly, there are conditions attached to protect the BEE party. While it sounds specific to larger businesses, consider an entrepreneur selling a business to a Black party. If the business represents 25% of total business interests, the sale could qualify for ownership. Consider a scenario of a road freight business selling trucks to drivers. This could also qualify as ownership through the sale of assets. The sale of assets is definitely an option for QSE businesses, particularly where straight equity ownership is problematic.

Many of the earlier initiatives to recognise the sale of assets as an ownership alternative were driven by ruthless companies trying to dump non-productive assets or business units that were diminishing assets. These assets were sold off to unsuspecting Black parties who were left

With a sinking asset. The failure was then blamed on mismanagement by the Black party. The Codes prevent the offloading of unproductive assets by measuring the value of the sold assets as a percentage of the retained assets for a number of years.

The key benefit for Black people in the sale of assets transactions is control over operating assets. Control over an operating asset gives Black people operational involvement in the business. Operational involvement is critical to transformation. In many instances a small equity stake does not necessarily result in any operational involvement. If the Black party creates a sustainable business out of the asset, it achieves the objectives of ownership in the context of BEE: “The objective of the ownership element is to have Black people own, control and manage the economic resources of the country.”

Neither party is disadvantaged from the transaction. The BEE party is given an opportunity to participate in the mainstream economy and the company is paid for the sale of the asset.

Protection against the Sale of Diminishing Assets

The Codes provide that the assets sold to Black people must be capable of being run as a sustainable business without undue reliance on the seller. Moreover, the points originating from the sale are recalculated annually, based on the current value of the sold assets relative to the current value of the enterprise.

If the value of the sold asset devalues in comparison with the value of the retained assets, the ownership score of the measured enterprise decreases accordingly. If the value of retained assets grows at a faster rate than the sold assets, the ownership score of the measured enterprise will also decrease. The measured entity must sell assets capable of growing at a rate at least as fast as its own growth if it wants to retain a consistent ownership score.

Where a dog or diminishing asset is sold as an empowerment deal, the ownership points will quickly decrease to nothing, forcing the measured entity to enter into another BEE transaction. For the measured entity to retain a favourable ownership score it should retain an active interest (without allowing undue reliance) in the sold asset to monitor the ongoing success.

Possibly related posts: (automatically generated)
BEE Ownership and the Sale of the BEE Assets

• Basic BEE Qualification Criteria for Recognizing the Sale of Ownership Assets
• How about selling Assets to your Black Partner? Will it award for your BEE score?
• Voting Rights and Economic Interest Measures in BEE
• South African Bee Tax: Application of BEE to Taxation
• Black Economic Empowerment (BEE) once empowered always empowered principle
• Like BEE or NOT You Have to Give Assets to Black
• Application of Bee business Ownership
• BEE as a Sales Tool
• Business Recognition of Black ownership Trusts
• BEE Business Development Qualifying Contributions part 1