BEE Partner, South Africa Economy Watch

Trusts are commonly used by small business owners as an asset protection mechanism. The protection is normally used in the form of a family trust. The Codes do not intend restricting a BEE party’s use of family trusts to protect assets.

The trust is a notably pliable structure. It has been used to manipulate ownership in a manner that leaves all the real benefit of ownership in favour of the previous owners with no benefit accruing to the named beneficiaries, which in the case of BEE would be the Black participants.

To prevent abuse through structuring ownership through trusts, Annexure 100B provides the following recognition criteria where Black ownership is held through a trust.

• The trust deed must define the beneficiaries and the proportion of their right to receive distributions.
• The names of the beneficiaries or a defined class of natural persons must be maintained in a written record.
• The fixed percentages of the entitlement or a fixed formula for calculating the portion of entitlement for each beneficiary must be available in written records and adult movie database.
• The trustees must have no discretion over whom the beneficiaries are and each beneficiary’s percentage entitlement to participation. The trust deed must give an unconditional right to participants to receive all economic interest on termination or winding up of the trust. If the trustees have any right to redirect the benefits on termination or winding up of the trust, the business will not receive recognition as Black owned.

For the measured business to recognise the full target of 25% Black ownership through a trust, the business must have a certificate issued by a competent person such as a chartered accountant or attorney:

— that the trust was created for a legitimate commercial reason (the reason must be disclosed), and

— the terms of the trust do not directly or indirectly seek to circumvent the provisions of the Codes or the Act.

Trusts represent a minefield in terms of establishing Black ownership. Ideally they should not be used. Where they are used, appropriate advice should be sought from both attorneys and verification agents, who will view trusts with suspicion.

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