The BBBEE Code 100 refers to the ownership of a business. The Code Series 100 is the measurement of the ownership element in the BBBEE scorecard. While Statement 100 refers to the general principles of measuring ownership.
Through Statement 100, the ownership element on the scorecard awards points on the following: i) Voting rights, ii) Economic interest, iii) Ownership fulfilment, iv) Net value and v) Bonus points for new entrants either as black shareholders or black employees receiving shares in the company.
Key Measurement Principles
Rights of ownership by black people in a company give an organisation points on the ownership element of the scorecard. Black people can hold rights of ownership either as direct participants or as participants through the following:
There are three principles that can be used to calculate ownership. These are the Flow Through Principle, the Modified Flow Through Principle and the Exclusion Principle.
Inclusion of Mandated Investments in ownership calculations
Mandated Investments are investments made by a third party on behalf of the actual owner of the funds.
The current Code of Good Practice allows entities to decide whether or not to include mandate investments when doing their ownership calculations. However there are a few rules that apply.
Firstly, when an entity decides to exclude mandates, it should be all mandates and not selected ones. Secondly, if all the mandates are to be included, the measured entity may treat all of the ownership as non-black or they may get an independent agency to report the extent of black rights of ownership originating from the mandated investment. Thirdly, Rights of Ownership held by mandated investments may be excluded, but with a maximum exclusion of 40%.
Continued Recognition after exit of BEE participants
After a black person leaves an enterprise through a sale of shares or loss of shares, the measured entity is allowed to recognise that portion of black ownership. However, this is subject to the following criteria:
In addition to the above, if a black investor loses shares, the following applies:
Continued ownership recognition is calculated using the following:
All of the above will be multiplied in order to reach the continued recognition measurement.
Some rules that apply to other types of ownership
An entity’s scorecard may have more black participant points through:
Contributions made by these participants are calculated as follows:
Black people holding rights in an entity through the following also contribute to the ownership scorecard:
Private Equity Funds, Options and share warrants as well as equity instruments carrying preferent rights.
Statement 102 is recognition of the sale of assets, equity instruments and businesses. It determines how these transactions will contribute towards ownership points.
In order for ownership points to be recognised, the transaction needs to have been firstly, one that creates sustainable business opportunities for black people. Secondly, the transaction should result in the transfer of skills and productive capacity into the hands of black people.
The calculation of ownership points must be based on:
Statement 103 is the recognition of equity equivalents for multinationals and how they can apply for BEE status as well as how to measure their contributions.
All Equity Equivalent contributions made by a multinational in South Africa are measurable against the value of their operations in the country. In addition, equity equivalent programmes are limited to multinationals subject to global trends.
When a multinational approaches the government with an equity equivalent programme, the minister may approve the proposal.
If the equity equivalent programme forms part of a Sector Code, it also constitutes as a recognised programme.
Equity equivalent programmes are usually specific to a certain sector. However, the minister may approve a non-sector specific programme.
Equity Equivalent Programmes are those that support:
Equity Equivalent Programmes should include certain information in order for it to be approved. Firstly, there should be a full description of the programme and its projected outcomes. In addition to this, there should be a qualification criteria for participation in the programme. Also, there is a need for a timeline on which the programme will be implemented and delivered. The methods that shall be used to measure the value of the contributions are also included, while the details of the sponsors of the programme are added to this.
Enterprises that benefit from the programmes are as follows:
An example of Equity Equivalent Programme is enterprise creation. This is when a multinational is involved in a new value adding enterprise. This equity equivalent contribution should involve the provision of interest free loans and no gain grants. In addition, the human capital investments into the new enterprise should be equivalent in value to 50% of the projected operational costs for the first three years of its establishment.
When a multinational invests in social development as an equity equivalent programmes, there are a few rules that apply. Firstly, the programme must comply with the socio-economic development element of the code. Secondly, it cannot be double counted by also adding to the multinational’s score under Socio-Economic development.
The following are rules that are specific to multinationals: