Understanding Ownership: Key Principles & Measurement Techniques

Ownership is a critical part of Broad-Based Black Economic Empowerment (B-BBEE) compliance for businesses operating in South Africa. In order to achieve Ownership compliance, businesses must adhere to the principles outlined in Statement 100 of the Amended Codes of Good Practice (the Codes).

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This article will provide an overview of these principles to help businesses better understand the requirements for Ownership.

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According to Statement 100, a business can have Black shareholders who collectively own at least 25%, as per the target, of the issued shares of the business. Black shareholders can be individuals, Trusts, Schemes or entities (not limited to). These shareholders must have the right to vote & receive economic interest. ?

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Black shareholders must have a real and measurable economic interest in the business. The economic interest must be proportionate to the shares that is held in the Measured Entity.

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Black shareholders must have voting rights in the business’s decision-making processes such as the election of directors, approving major transactions and the adoption of the business’s articles of association. This ensures that Black shareholders have a say in how the business is run and thus, according to their shareholding.

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Sub-Minimum Requirements

A business is required to achieve a minimum of 40% on Net Value points (8 points) and non-compliance with this sub-minimum target will result in a discount of the achieved B-BBEE Status Level.

Flow-Through Principle

When the rights of Ownership are measured in any category of Black people in a business, only the rights held by natural persons are relevant. If the rights of Black people are to pass through a juristic person, then those rights of Ownership of Black people in that juristic person are measurable. This principle applies across every tier of Ownership in a multi-tiered chain of Ownership until the chain ends with a Black person holding the rights of Ownership.

To apply this principle across one or more intervening juristic persons, it should be as follows:

1.????Multiply the percentage of the participant’s Ownership rights in the juristic persons through which those rights pass by the percentage Ownership rights of each of those juristic persons successively to the business; and

2.????The result of this calculation will represent the percentage of Ownership rights held by the participant.

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Modified Flow-Through Principle

A business applying this principle cannot benefit from the Exclusion Principle. This principle applies to a B-BBEE owned or controlled company in the Ownership of the business.

When calculating the Exercisable Voting Rights and Economic Interest, it’s important to note that in the chain of Ownership, Black people have a flow-through level of participation of at least 51%, and then only once in the entire Ownership structure of the business, such Black participation may be treated as 100% Black.

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The Modified Flow-Through Principle may only be applied in the calculation of Voting Rights and Economic Interest of the Ownership Scorecard. In all other instances, the Flow-Through Principle is applied.

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Exclusion of Specified Entities when Determining Ownership

When determining Ownership in a business, the Ownership held by Organs of State or Public Entities must be excluded.

This Exclusion is to be effected before any other Ownership discounting methods are applied.

When calculating the Ownership score, businesses must apply the Exclusion Principle to any portion of their Ownership that is held by Organs of State or Public Entities.

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In conclusion, understanding the principles of Ownership as outlined in Statement 100 of the Amended General Codes of Good Practice is essential for businesses that want to achieve B-BBEE compliance. By ensuring that they meet the requirements for Black Ownership, Economic Interest, Voting Rights, Shareholder Rights and Participation, businesses can earn Ownership points and contribute to the economic empowerment of Black People in South Africa and the growth of local economies.