The DTI’s new ruling on Trusts in B-BBEE Ownership Initiatives!


Dear Business Owner

On the 29th of November 2018 the BBBEE Commission came out with a guide entitled “Understanding the use of Trusts in B-BBEE Ownership Initiatives”.

Two important issues were raised by the Commission in its guide:

1. The use of educational trusts as part of a BBBEE ownership Initiative.

2. The involvement of minors in BBBEE ownership trusts.

The BBBEE commission held that the use of “under-age children as beneficiaries will be regarded as circumvention of the B-BBEE Act as they have no capacity to exercise rights flowing from such ownership.”

With regard to educational trusts, the BBBEE commission held that “Beneficiaries cannot be selected each year to receive benefits in the form of dividends from the measured entity, for payment of their education, training or social upliftment projects which are matters that should be catered for under corporate skills development, social investments or socio-economic development”

On the 17th of May 2021 The Minister of Trade, Industry and Competition announced in  a Practice Note on discretionary Collective Enterprises, such as employee share ownership plans (ESOPs) and broad-based ownership schemes (BBOS), a change to the above interpretation by the BEE commission.

The Minister clarifies several issues of misalignment in interpretation on the issue of ownership.

1. Educational trusts can be used within ownership. The DTI has ruled that discretionary schemes making distributions in terms of skills development, training and education “to members of a defined class of natural persons does not in any way detract from the Economic Interest points claimable by or through these schemes”

2.In relation to ownership regarding minors, the DTI has ruled “without derogating from the generality of this statement, minors for example, are not restricted from being participants or beneficiaries in any way, whether as part of a defined class of natural persons or individually.”

Clear rules of validity have been outlined for this form of ownership, in terms of the role of fiduciaries, discretionary powers, the class of persons, meaningful board participation; etc.

As measured entities, you may have asked yourselves questions such as the following:

  1. Since ownership is a priority element, how is the net value points going to be calculated or determined?
  2. Will verification agencies interview minors as part of the B-BBEE verification process?
  3. What is the balancing act that trustees need to ensure around net value and the purpose of the trust.

EconoBEE had a meeting with the DTI and we believe that the clarification received will address the queries above.

Please contact us to hear what they said!


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