B-BBEE: Automatic recognition under the new codes
- Jendi Moore
- Sep 1, 2014
- 2 min read
The implementation deadline for the new Codes are around the corner and we have definitely noticed a significant increase in B-BBEE activity as companies desperately scramble to comply with the much more onerous provisions that will become compulsory on 1 May 2015. Many companies are starting to realise that there is a very real possibility that they could become completely non-compliant (from a position of Level 4, or 100% compliant) if they do not drastically address their B-BBEE programmes. Luckily, at least for some companies, there is a bit of good news…
The first bit of good news is that the threshold for exemption status has been increased from below R5 million to below R10 million. In other words, a company with an annual turnover of less than R10 million will not need to implement a B-BBEE programme but will receive 100% recognition, or Level 4 status.
For small entities who wish to obtain a competitive edge the news gets even better. An entity with an annual turnover of less than R50 million will receive automatic Level 2 recognition if it is at least 51% black-owned. This is a very attractive proposition, as obtaining Level 2 recognition on the full scorecard that would apply to such an entity is close to impossible in many sectors. The criteria for this recognition are fairly simple – the black shareholder (which can be an individual or an ownership scheme such as an employee trust or a charitable broad-based scheme) must have 51% of the shares and 51% of the voting rights in the company and its shares must be realised (i.e. the share acquisition debt must be reduced or the value of the shares must increase) by at least 10% per annum (or slightly more in some years, with reference to a prescribed realisation scale) and fully realised after 8 years. This could prove to be a massive advantage to smaller entities that would normally have to comply with the full scorecard but simply do not have the means to obtain a good score.
As always, we caution clients not to be hasty when setting up B-BBEE ownership structures, as there are many risks, both from a commercial and a B-BBEE compliance perspective, if these are not structured correctly and in minute detail. Expert assistance is definitely recommended.
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