The B-BBEE Commission, a body tasked with overseeing, supervising and promoting adherence to the B-BBEE Act in the interest of the public among other functions, published clarification on the legitimacy of share options.
In this letter, the B-BBEE Commission addresses Ownership schemes implemented with the aim of achieving a Level 2 or 1 Status. However, in many of these schemes do not meet the minimum requirements for Ownership:
“We are also aware that companies might be opting for such a transaction in order to acquire automatic B-BBEE Level 2 or 1 status, however, in most cases we find that the transactions fail to meet the Ownership test when measured against voting rights, economic interest and net value realisation including additional rules in Annexes (A)-(D).”
Regardless of the means of implementation for different Ownership options, the spirit of B-BBEE legislation must always be observed and Ownership structures must be implemented in such a manner that it passes the Ownership tests:
- Voting rights
- Economic interest
- Net value realisation
- Other rules in Annexes A-D
In our consultation services on B-BBEE, SDF Corp always strives to emphasize this aspect to our stakeholders: Real transformation can only take place when the legislation is implemented in a way that is truly inclusive and can bring about true change and benefit to businesses and employees. Implementing legislation without strategy and business goals leads to waste that few companies can afford.
An important part of the B-BBEE Commission’s clarification statement further reads as follows:
“It is important to also note that where the share option is in a form of a Trust, the indirect shareholders should be afforded similar rights as those that would have been afforded to the direct shareholders as ultimately the entity acquires black shareholding from the indirect shareholders even if they are beneficiaries of a Trust, ESOP or BBOS.”
Regardless of your current B-BBEE Consultant, our team of experts pride ourselves in advising and implementing B-BBEE in a way that unlocks true transformation and we will be happy to provide any South African business with a free 45-minute consultation session via video call to discuss any points of uncertainty in your B-BBEE implementation.
For more about this clarification, watch this eNCA video with EconoBEE:
Link to original video published on EconoBEE website: https://www.econoserv.co.za/enca-corruption-scorecard-panel-discussion-on-bbb-ee-fronting-with-econobees-muriel-mushariwa-part-1/