Yes, with a target of 25% the amended B-BBEE codes of good practice without a doubt place significant emphasis on black equity ownership. Many have found this move by the DTI strange and are rightly wondering what happened to ‘broad-based’ black economic empowerment.
The generic amended codes require that a business spend 40% of its procurement with suppliers that are 51% or more black-owned. Where will such suppliers come from? If they don’t exist, who will create them? If they do exist, do they have the infrastructure, skills and expertise at this moment to deliver what the market needs? But that’s a topic for another day.
How urgent is it really for businesses to do a black equity transaction in terms of the amended codes? A business that falls under one of the nine sector-specific codes should not be doing such a transaction right now, as we do not yet know what the amended sector codes will require when they are finalised in October 2015.
Sure, benefits of different ownership structures can now already be researched and potential partners short-listed, but no transaction should be done unless there is a very good reason for doing so.
It is important to note that the Equity Ownership element is measured at the time the verification takes place and not at your financial year-end. This means that even though the 2016 financial year will be measured in terms of the amended codes, the Equity Ownership element will only be measured some time later in 2016 once your financial statements have been finalised and your current B-BBEE certificate is about to expire. For some businesses this could be very late in 2016.
Taking such risks into consideration as choosing the wrong partner, signing off on the wrong type of structure, falling foul of tax consequences, inadvertently ‘fronting’, and creating false expectations, businesses are advised to not rush into an equity transaction they will later regret. In the past decade, many businesses fell into this trap, and some simply did not survive the after-effects.
Black ownership is not that urgent.
Author: Anton de Wet CA(SA) is a Partner at Middel & Partners
