BEE Partner, South Africa Economy Watch

Ownership has resulted in many of the negative comments regarding BEE. How many times have comments been passed making vague reference to “not giving my business away to anyone!” followed by a few obscenities. These comments are largely based on a fear of the unknown. The unknown is not referring to the incumbent change so much as the ignorance of the commentator about the nature of the ownership element.

The Codes do not imply that 25% of a business must be given away, which would be ludicrous. What BEE is saying is that businesses wishing to contract successfully with government and other downstream suppliers must bring in Black ownership. QSEs are slightly different because they may choose whether or not to include the ownership element, depending on their strategy.

Ownership should be used as a strategic business tool. When dealing directly with government, businesses with Black ownership are likely to find they win more contracts with government.

There are two important factors here. The first is that there is nothing about giving a business away. If the business has value, then it should be sold to a Black party. The existing business owner should realise value for the portion of the business forgone. The second point is that if including Black ownership will not bring benefit to the business, the QSE owner may choose to participate in four of the other elements instead.

Most Black people do not have access to finance to pay for the relevant share of the business. But there is no law against the original _owner financing the Black person’s entry into the business at market- related rates. This is known as vendor financing. There are complications with a company because the Companies Act prevents a company from helping a party to buy shares in it. A company may not provide finance to an outside party to buy shares in itself unless it can show that it will be liquid and solvent after concluding the deal. This does not apply to close corporations, only to companies.

The crux becomes the sale of an asset at an agreed amount between two willing parties. Remember that BEE strategies must be based on sound economic principles. Giving a shareholding away to someone who will not bring benefit to the business is not a sound business principle.

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