BEE Partner, South Africa Economy Watch

The general broad-based ownership scheme will only receive recognition as Black owned where it satisfies the conditions stated in Section 1 Annexure 100B of Statement 100, which are as follows:

• 50% of the fiduciaries must be appointed by civil society.
• 50% of the fiduciaries of the scheme must be independent of the scheme, having no employment or beneficial interest in the scheme.
• 50% of the fiduciaries must be Black people and at least 25% Black women.
• The chairperson of the scheme must be independent of the scheme and be appointed by the beneficiaries of the scheme.
• The management fees of the scheme must not exceed 15% of total economic interest accruing to the trust. 85% of the benefits received by the fund must go to the beneficiaries.

The scheme’s constitution must state how it will deal with economic interest received, what portion will be reserved for future use and what portion will be distributed. On termination or winding up of the scheme, all economic interest must be transferred to the beneficiaries or an entity with similar objectives.

When simplifying the Codes some areas were not addressed. While not specified in the Codes, the following comments should be considered to create a stronger scheme that protects the interests of the beneficiaries.

From a practical perspective, entities should assume that the information above must be written into the constitution of the scheme before it may receive recognition as a general broad-based ownership scheme.

Interestingly, the Codes fail to give guidance on the number of beneficiaries the scheme should have to make it broad-based. While it is not written into the Codes, a broad-based scheme is generally considered to benefit 50 or more outside people who are not employees. For employee schemes the number of participating employees does not matter. There are certain tax advantages attached to BEE employee schemes but they are only granted under certain conditions.

The scheme should contain a detailed account of the beneficiaries using the flow-through principle to establish that the beneficiaries of the scheme are Black people as defined in the Codes.

Independent fiduciaries should be independent of the scheme, of the company who appoints the fiduciaries, of the company who manages the scheme and of the people who appoint them.

If a broad-based ownership scheme is not recognised as a general broad-based ownership scheme, as discussed above, the business may not include it in ownership as Black owned, unless it qualifies as an employee ownership scheme. If the broad-based ownership scheme does not qualify for recognition, then it will be included as non-Black owned when measuring ownership. The qualification is strict to limit fronting operations from diluting benefits to the intended beneficiaries. It is critical for measured entities to do necessary due diligence investigations to establish whether the intended BEE party is recognisable as Black owned when measuring ownership.

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