Why is now the time to implement B-BBEE in your business? For quite a number of reasons.
In these articles, this year we have discussed some important technical issues to keep in mind when deciding on a B-BBEE strategy. We said that although B-BBEE inherently remains a ‘grudge purchase’ for most, if the intent is to ‘do it right’, there is no reason to fear the process. We looked at the definition of a broad-based ownership scheme and said that especially for smaller and medium-sized companies, it is recommended that equity ownership be held in trust, at least for the short to medium term. We highlighted the sole purpose of the modified flow-through principle and the legal pitfalls of misapplying that principle. And we also said that, if structured optimally by experts, black ownership in no way need to be a ‘give-away’. So, if you didn’t get around to reading my previous viewpoints, don’t stress.
Back to our original question. Why is NOW the time to implement B-BBEE in your business?
Here are some of the reasons in brief:
- Most B-BBEE certificates issued under the ‘old’ codes have now expired, putting such companies at significant risk of losing market share, existing contracts and government licences.
- In terms of the amended codes, a verification must be based on a measured entity’s official financial year. As most companies are already two-thirds through their 2018 financial year, immediate implementation under the last three scorecard elements is now critical. These are skills development, enterprise and supplier development, and socio-economic development. Once your financial year has passed, large enterprises (above R50 million annual turnover) will have lost this window period opportunity for implementation and may find themselves without a B-BBEE certificate for a year or even longer. Not addressing any one of these elements will most likely result in a non-compliant overall status.
- It is said that the remaining sector codes that have not yet been amended (Agriculture, Financial, Construction and Transport) will either be amended before the end of 2017 or be repealed by the DTI. No matter which happens, your 2018 financial year will be measured in terms of some form of the amended codes with its much higher targets and much more onerous requirements.
Seriously, NOW is the time to start implementing!
The good news is that implementation within a company’s financial year does NOT apply to the Ownership and Management Control elements, as these elements are measured at date of verification and not at financial year-end. If a company still has a compliant B-BBEE certificate, strategic changes to the staff and managerial profile and equity ownership only needs to happen prior to next year’s verification date.
Even better news is that many qualifying small enterprises (between R10 million and R50 million annual turnover) are starting to now realise that 51% black equity ownership resulting in an automatic Level 2 status is by far their best option and that such an equity transaction only needs to be implemented before their current B-BBEE certificate expires. Such entities are then exempt from the scorecard requirements and the financial year-end constraints mentioned.
Author: Anton De Wet CA(SA) Managing Director of NetValue™ Equity Partners