Relationships, whether personal or in business arrangements like a BEE deal, end with death or divorce. Legal fees and taxes are certain:
Relationships: From Excitement to Discontentment
Many relationships sour, once the excitement of the courting is over and the realization of the limitations of the partnership sets in. Sometimes this turns ugly and ends in litigation, often emotionally charged and sometimes just vengeant. A solid pre-nup can mitigate the damage and set out the rules, but the process of divorce often leaves both parties feeling cheated. Legal and other advice means that neither side really wins, and the pie to be shared is smaller than before the divorce. The destruction of value is worth the ability to chart a course independently.
BEE Contracts: A Mirror of Commercial Unions?
Even when the other party is not contesting the separation, divorces are never simple. This applies to dissolving a marriage, a customs union, or a commercial arrangement. Look at the Bezos divorce, Brexit, or the Growthpoint BEE dispute as examples.
The reasons for a BEE relationship no longer working mirror those in a marriage – a party disappears; enthusiasm wanes; better prospects beckon; expectations aren’t met; trust breaks down; or it’s simply unproductive. This happens even without a guilty party. Sometimes, it’s just not working.
The Complexities of Undoing a BEE Deal
Undoing a BEE deal is very different from a divorce. There’s one crucial difference between matrimonial and shareholder relationships: in marriage, if one party wants to end it, the other can’t save it. But in shareholding, especially with disagreements, the unhappy partner can’t just hope for the other to leave.
For BEE ownership points, the Black Person has to be the shareholder in the register. Contracts exist, but a shareholder gets rights from a company’s Memorandum of Incorporation, Company Rules, and the Companies Act. Some of these rights can’t be taken away.
How to Exit a BEE Ownership Deal
In undoing any shareholder relationship, the basic objective must be to get the shareholder’s name out of the register. This must follow the correct process or it will simply be put back (and other claims may still follow in respect of, say, lost dividends or legal fees).
Potential Paths for Exiting:
Willing Seller:
If the BEExiter agrees to sell, buy the shares. The price must be mutually agreed upon.
Forced Sales:
A well-written shareholders’ agreement sets out the conditions of a forced sale. It requires prior agreement and occurrence of a specific event.
Optional Sales:
A call option can force a sale at a pre-determined price in the future.
Donations:
The BEExiter cannot resign as a shareholder but can give away their shares. This results in a tax liability for the donor.
Other Forced Sales:
The Companies Act allows aggrieved shareholders to seek redress, like forcing a buyout at a fair value.
The Value of Reconciliation and Dialogue
One party cannot merely remove another. Negotiation is key. It’s often best to address issues before they deteriorate.
- Were the initial intentions honorable?
- Were the terms fair and reasonable?
- What’s the shared vision for the future?
The Tusker Approach to BEE Deals
At Tusker, we specialize in BEE and shareholder transactions. Our agreements clearly outline parties’ rights and potential exit procedures. However, setting and managing expectations is fundamental to success.
