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Deemed BEE Ownership: Legitimate Ways to Achieve BEE Ownership Points

In this article, we discuss several ways to legitimately achieve deemed BEE ownership points without having actual BEE owners. This is called ‘deemed ownership’.

A Recap on the Challenges of Achieving Actual BEE Ownership

Ownership is the trickiest part of the BEE Scorecard. Many times, business owners are not committed to BEE for various reasons, such as being multinationals operating in global markets that prioritize their own citizens’ interests over South Africans. This lack of commitment can make achieving actual BEE ownership difficult.

Smaller businesses, like entrepreneurial startups or family businesses, value control and operational independence. Selling shares to external BEE partners may not align with their vision and could lead to disagreements and loss of control. Finding suitable black partners can also be challenging, and sometimes, business owners simply cannot find investors who believe in the investment thesis.

Additionally, misconceptions about giving away shares and financing BEE deals create further obstacles. The intricacies of BEE ownership often make it the hardest part of the BEE Scorecard to address.

Deemed BEE Ownership: Exploring Alternative Options

What many do not often appreciate is that the BEE Codes allow for entities to be treated as black-owned, even if they are not.

Flow Through Ownership: Under Code 100, Section 3.4.3.1, entities with 51%+ Black participation in the chain of ownership can be treated as 100% Black owned. This means that even with 49% non-Black ownership, the entity can still be considered Black owned.

B-BBEE Facilitator: In terms of Code 100, Section 3.6, certain organs of state or public entities designated as B-BBEE facilitators are treated as 100% Black owned. This option is typically reserved for public entities and may not be applicable in many ownership structures.

Broad-Based Ownership, ESOPs, and Trusts: Code 100, Sections 3.9 and 3.12, allow for broad-based ownership schemes, employee share ownership programs (ESOPs), and non-discretionary trusts to contribute to effective Black ownership. Employees who are beneficiaries of qualifying schemes can be counted as Black owners.

Business and Asset Sales: Statement 102 allows entities to claim pro-rata ownership as if they had sold shares, even if they haven’t, after selling part of the business or assets to a black-owned company.

Options: Code 100, Section 3.13, allows option holders to be treated as shareholders before they exercise their options, effectively deeming them as Black owners.

Equity Equivalents: Statement 103 enables multinationals to support BEE without diluting ownership by committing to invest in Black businesses equivalent to a minority interest value.

Private Equity Funds: Code 100, Section 3.10, allows private equity shareholders to be considered Black as long as the Manager and the Fund meet specific criteria.

Each approach has its merits, and choosing the best option for your business requires careful consideration of various factors, including value addition, financial affordability, control, and regulatory compliance.

If you have any questions or need further assistance, feel free to contact us at info@tusker.co.za.

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