By Nicolene Schoeman-Louw, Managing Director of Schoeman Law Inc.
If you are a small business owner in South Africa and struggling to understand how the new BBBEE codes of good practice could impact your business then read on….
Compliance with BBBEE is a turnover based consideration. Businesses are categorised into 3 levels for this purpose, namely: Exempt Micro Enterprises (“EME”), Qualifying Small Enterprises (“QSE”) and Generic enterprises (“GENERIC”).
Entities are measured on turnover as set out below:
- EME - Annual Turnover ≤ R10 million
- QSE - Annual Turnover of R10-50 Million
- GENERIC - Annual Turnover > 50 Million
Priority items under the new BBBEE codes of good practice
The new codes list three priority elements:
- Skills development
- Enterprise and Supplier Development
A QSE must achieve 40% of the points for two of the three priority elements, with Ownership being a compulsory element. Non-compliance with the thresholds for the above priority elements, will result in a penalty by one level on the QSE scorecard. So, where businesses do not comply with ownership element or any of the other priority elements, they will be penalized.
2. Enterprise and Supplier Development:
Essentially, this newly introduced element represents the merger between what was previously separately known as enterprise development and preferential procurement.
This element measures the extent to which the business procures or purchases / supports other businesses in buying / supporting suppliers who are BBBEE compliant. Furthermore, it also measures the extent to which enterprise and supplier development initiatives are intended to assist the growth and the sustainability of so-called “black enterprises”.
3. Management Control:
Essentially, this newly introduced element again represents a merger between what was previously separately known as management control and employment equity. This element measures the effective control of the entity by black people.
4. Skills Development:
This element measures the extent to which employers carry out initiatives designed to develop the competencies of employees belonging to the designated groups as set out in the Black Economic Empowerment Act No. Act 53 of 2003 (the “Act”) as amended. It furthermore relates to employees internally and to persons being trained or skills otherwise developed externally (in relation to the business).
5. Socio-Economic Development:
In many circles it is also known as the CSI (corporate social investment) element of the scorecard. Essentially, this measures the support (financial or otherwise) by the business towards more philanthropic causes.
In terms of the codes of good practice, if an EME has 51% black ownership they automatically qualify as a level 2 contributor and if 100% black owned, as a level 1 contributor. This level is certified byonly submitting an affidavit attesting to the fact that they qualify as an EME and confirming the ownership percentage in question.
This is obviously a great advantage from a compliance, administrative and cost perspective.
An interesting development in terms of the codes are that QSE’s now stand to benefit from the same arrangement as set out above for EME’s. Particularly in regards to companies with 51% black shareholding holding an automatic level 2 BBBEE accreditation and 100% black shareholding receiving a level 1.
As such, it is important to consider a BBBEE strategy that suits your business, vision and specific needs best. Once these have been identified, it should be implemented by a suitably qualified team of professionals.
Nicolene Schoeman–Louw is an admitted attorney of the High Court of South Africa, as well as being a Conveyancer, Notary Public and Mediator. She is the Managing Director of SchoemanLaw Inc. Attorneys, Conveyancers and Notaries Public in Cape Town. Visit www.schoemanlaw.co.za for more information or email firstname.lastname@example.org.