Original publish date – Tue, 10 Aug 2010 14:01:35 +0000, Keith
Ownership is the most contentious issues of the B-BBEE elements. Many people condemn B-BBEE as a result of the misinformation surrounding ownership, yet ownership can be one of the best elements to not only earn points, but make profits.
The concern that may people have with ownership is it tends to make one, or a small group of people wealthy, and ignores the broad section of the economy. This is not unusual in itself. Traditionally, throughout the world, only a small percentage of people are businessmen doing big deals all day long. Think of Donald Trump, Richard Branson, Johan Rupert, Patrice Matsepe. We cannot name a lot of people, because there are not that many billionaires!
However business is about buying and selling – products, services and also shares in your business. Bill Gates owns less than 10% of the shares in Microsoft. He had to sell shares in order to grow the business. So too have many successful businessmen – Brian Joffe, founder of Bidvest does not personally own the majority of shares in his business. Only a few JSE listed companies are more than 50% owned by their original founder, or even the family.
So, it makes sense to sell shares in the business – to raise capital, to open new markets, to gain experience from other owners who may also become board members. Many businesses have sold shares to their employees, or given them shares in lieu of bonuses, or in the form of a “golden handcuffs”. In all cases, the intention would be to engender more loyalty, productivity, or to attract more talent.
There MUST be a reason for selling shares.
The sale of shares should be analyzed from a B-BBEE viewpoint – look at how many points the sale will earn you. Ensure that the points are maximized as the sale is done, rather than wait for an analysis afterwards when it is to late.
The codes can get quite complicated over ownership issues – not just the inclusion of black women, but also ownership schemes, and other participants.
The structures used in implementing the sale can also earn or lose you points. Trusts are a popular instrument in which to house shares, but there are some very specific rules to follow to ensure that all the points are earned. The same applies to employee ownership schemes and broad based schemes. Some companies issue options and warrants and they too should be taken into account. Certain shareholding can be excluded from the calculation, benefiting the scorecard: This includes mandated investments and ownership by organs of state.
To help our clients navigate through this difficult set of codes, we are organizing a breakfast seminar next month.