Code 100 Ownership

CODE SERIES 100: MEASUREMENT OF THE OWNERSHIP ELEMENT OF BROAD-BASED BLACK ECONOMIC EMPOWERMENT

STATEMENT 100: THE GENERAL PRINCIPLES FOR MEASURING OWNERSHIP

Issued under section 9 of the Broad-Based Black Economic Empowerment Act of 2003 Arrangement of this statement

Para Subject    Page

1    Objectives of this statement   

2    The ownership scorecard   

3    Key measurement principles   

4    Broad-Based Ownership Scheme   

5    Private Equity Funds   

6    Section 21 companies and companies limited by guarantee   

7    Trusts   

8    Options and Share Warrants   

9    Equity Instruments carrying preferent rights   

10    Realisation points   

11    The bonus points   

12    Annexe 100(A)   

13    Annexe 100(B)   

14    Annexe 100(C)  

 

1    Objectives of this Statement

The objectives of this statement are to:

1.1    specify the scorecard for measuring the ownership Element of Broad-Based Black Economic Empowerment (B-BBEE);

1.2    define the key measurement principles associated with the ownership Element of B-BBEE;

1.3    specify the specific measurement principles applicable to various types of Enterprises;

1.4    specify the specific measurement principles applicable to various types of Equity Instruments;

1.5    specify the formula for measuring Voting Rights, Economic Interest, Realisation Points and bonus points.

2    The Ownership Scorecard

The following table represents the indicators and method for calculating a score for ownership under this statement:

Category

Ownership indicator

Weighting points

Compliance Target

2.1

Voting rights:

  
 

2.1.1 Exercisable Voting Rights in the Enterprise in the hands of black people

3

25%+l vote

 

2.1.2 Exercisable Voting Rights in the Enterprise in the hands of black women

2

10%

2.2

Economic Interest:

  

2.2.1 Economic Interest of black people in the Enterprise

4

25%

2.2.2 Economic Interest of black women in the Enterprise

2

10%

 

2.2.3 Economic Interestof the following black natural people in the Enterprise:

1

2.5%

 

2.2.3.1    black designated groups:

2.2.3.2    black Participants in Employee Ownership Schemes:

2.2.3.3    black beneficiaries of Broad based Ownership Schemes; or

2.2.3.4    black Participants in Co-operatives

 

2.3

Realisation points:

  
 

2.3.1 Ownership fulfilment

1

Refer to paragraph 10 1

 

2.3.2 Net Value

7

Refer to Annexe C paragraph 4

2.4

Bonus points:

  
 

2.4.1 Involvement in the ownership of the Enterprise of black new entrants:

2

10%

 

2.4.2 Involvement in the ownership of the Enterprise of black Participants:

1

10%

2.4.2.1    in Employee Ownership Schemes:

2.4.2.2    of Broad-Based Ownership Schemes: or 2.42.3 Co-operatives.

3 Key Measurement Principles

3.1    General principles:

3.1.1    An Enterprise receives points for participation by black people in its rights of ownership, using the ownership scorecard in paragraph 2. Black people may hold their rights of ownership in a Measured Entity as direct Participants or as Participants through some form of business such as:

3.1.1.1    a company with shares;

3.1.1.2    a close corporation:

3.1.1.3    a co-operative;

3.1.1.4    any form of juristic person recognised under South African law;

3.1.1.5    a partnership or other association of natural persons;

3.1.1.6    a Broad-Based Ownership Scheme;

3.1.1.7    an Employee Ownership Scheme; and

3.1.1.8    a Trust.

3.2 The Flow-Through Principle:

3.2.1    As a general principle, when measuring the rights of ownership of any category of black people in a Measured Enterprise, only rights held by natural persons are relevant. If the rights of ownership of black people pass through a juristic person, then the 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 that chain ends with a black person holding rights of ownership.

3.2.2    The method of applying the Flow-Through Principle across one or more intervening juristic persons is as follows:

3.2.2.1    Multiply the percentage of the Participants rights of ownership in the juristic persons through which those rights pass by the percentage rights of ownership of each of those juristic persons successively to the Measured Enterprise; and

3.2.2.2    the result of this calculation represents the percentage of rights of ownership held by the Participant.

3.3 The Modified Flow-Through Principle:

3.3.1    The Modified Flow-Through Principle applies to any BEE owned or controlled company in the ownership of the Measured Enterprise.

3.3.2    In calculating Exercisable Voting Rights under paragraph 2.1.1. and Economic Interest under paragraph 2.2.1 the following applies: Where in the chain of ownership, black people have a flow-through level of participation in excess of 50%, then only once in that chain may such black participation be treated as if it were 100% black.

3.3.3    The Modified Flow-Through Principle may only be applied in the calculation of the indicators in paragraphs 2.1.1 and 2.2.1. In all other instances, the Flow-Through Principle applies.

3.4    The Exclusion of specified entities when determining ownership :

3.4.1    When determining ownership in a measured entity, ownership held directly by organs of state or public entities must be excluded.

3.4.2    In calculating their Ownership score, Measured Enterprises must apply the Exclusion Principle to any portion of their Ownership held by Organs of State or Public Entities.

3.4.3    Despite paragraph 3.4.1 and 3.4.2, the Minister may by notice in the gazette, designate certain Public Entities as BEE Facilitators. In calculatingtheirOwnershipscore, Measured Enterprises musttreat BEE Facilitators as having rights of Ownership held:

3.4.3.1    100% by Black People:

3.4    3.2 40% by Black Women:

3.4.3.3    10% by black designated groups;

3.4.3    .4 without any acquisition debts; and

3.4.3.5    without any third-party rights.

3.4.4    When determining ownership in a measured entity, rights of ownership of Mandated Investments may be excluded. The maximum percentage of the ownership of any measured entity that may be so excluded is 40%.

3.4.5    A Measured Entity electing not to exclude Mandated Investments when it is entitled to do so, may either treat all of that ownership as non-black or obtain a competent person’s report estimating the extent of black rights of ownership measurable in the Measured Entity and originating from that Mandated Investment.

3.4.6    A Measured Entity cannot selectively include or exclude Mandated Investments and an election to exclude one mandated investment is an election to exclude all Mandated Investments and visa versa.

3.5    The recognition of ownership after the sale or loss of shares by black participants:

3.5.1    A Measured Entity is allowed to recognise a portion of black ownership after a black participant has exited through the sale or loss of shares subject to the following criteria:

3.5.1.1    the black participant has held shares for a period of 3 years;

3.5.1.2    value must have been created in the hands of black people:

3.5.1.3    transformation has taken place within the measured enterprise.

3.5.2    black participation arising from continued recognition of black ownership cannot contribute more than 40% of the score on the ownership scorecard.

3.5.3    In the case of a loss of shares by the black investor, the following additional rules apply:

3.5.3.1    a written tripartite agreement between the Measured Enterprise, the black Participant and a lender must record the loan or security arrangement unless the Measured Entity is the lender; and

3.5.3.2    The period over which the points were allocated or recognised will not exceed the period over which the shares were held.

3.5.4 The ownership points under this paragraph that are attributable to the Measured Entity will be calculated by multiplying the following elements;

3.5.4.1    The value created in black hands as a percentage of the value of the Measured Entity at the date of the loss of shares as a percentage of Measured Entity’s value;

3.5.4.2    The B-BBEE status of the Measured Entity based on the balanced scorecard at the date of measurement; and

3.5.4.3    The ownership points that were attributable to the Measured Enterprise on the date of sale or loss.

4    Broad-based Ownership and Employee Ownership Scheme’s

4.1    Black Participants in Broad-Based Ownership Schemes and Employee Share Ownerships Schemes holding rights of ownership in a Measured Entity may contribute:

4.1.1    a maximum of 40% of the total points on the ownership scorecard of the Measured Entity if they meet the qualification criteria set out in Annexe 100(B).

4.1.2    100% of the total points on the ownership scorecard of the Measured Entity if they meet the additional qualification criteria set out in Annex 100(B).

5    Private Equity Funds

5.1    A Measured Entity may treat any of its ownership arising from a Private Equity Fund as if that ownership were held by black people, where the Private Equity Fund meets the following criteria:

5.1.1    more than 50% of any Exercisable Voting Rights associated with the Equity Instruments through which the Private Equity Fund holds rights of ownership, be held by black people;

5.1.2    more than 50% of profits made by the Private Equity Fund after realising any investment made by it, must by written agreement, accrue to black people;

5.1.3    the Private Equity Fund manager must be a BEE Owned Company as defined; and

5.1.4    more than 50% of the value of funds invested by any Private Equity Fund must at all times be invested in black owned enterprises that were at least 25% black owned before the investment of the Private Equity Fund.

6    Section 21 Companies and Companies Limited by Guarantee

A Measured Entity may elect to include or exclude Section 21 companies or companies limited

by guarantee for the purposes of measuring ownership in terms of this statement

6.1    A Section 21 company or company limited by guarantee that houses a Broad-Based Ownership Scheme or an Employee Ownership Scheme is subject to the provisions governing those types of schemes and not to this paragraph.

6.2    When a Measured Entity elects to exclude such companies, it can do so by excluding up to 40% of the level of their ownership completely from the determination of its compliance with the ownership target.

6.3    A Measured Entity electing not to exclude section 21 companies or companies limited by guarantee when it is entitled to do so, may either treat all of that ownership as nonblack or obtain a competent person’s report estimating the extent of black rights of ownership measurable in the Measured Entity and originating from those section 21 companies or companies limited by guarantee.

6.4    Black Participants in a Section 21 Company holding rights of ownership in a Measured Entity may contribute:

6.4.1    a maximum of 40% of the total points on the ownership scorecard of the Measured Entity if they meet the qualification criteria for Broad-Based Ownership Schemes set out in Annexe 100(B).

6.4.2    100% of the total points on the ownership scorecard of the Measured Entity if they meet the additional qualification criteria set out for Broad-Based Ownership Schemes in Annex 100(B).

7    Trusts

7.1    Black Participants in a Trust holding rights of ownership in a Measured Entity may contribute:

7.1.1    a maximum of 40% of the total points on the ownership scorecard of the Measured Entity if the trust meets the qualification criteria for Trusts set out in Annexe 100(B).

7.1.2    100% of the total points on the ownership scorecard of the Measured Entity if they meet the additional qualification criteria set out for Trusts in Annex 100(B).

8    Options and share warrants:

8.1    Exercisable voting rights and Economic interest will be recognised where a Participant holds an instrument granting the holder the right to acquire an Equity Instrument or part thereof at a future date, if the following requirements are met:

8.1.1    The Exercisable Voting Rights attached to that instrument are irrevocably transferred to the holder for the option period and are exercisable by the holder before acquiring the Equity Instrument;

8.1.2    the value of any Economic Interest is irrevocably transferred for the option period and paid to the holder of that instrument before the exercise of that right.

8.1.3    The value of an instrument must be determined by using a Standard valuation method for calculating the Net value.

9    Equity Instruments Carrying Preferent Rights

9.1    An Equity Instrument carrying preferent rights is measurable in the same manner as an ordinary Equity Instrument.

9.2    An Equity Instrument carrying preferent rights that has the characteristics of a debt, regardless of whether the debt is that of an Enterprise or of a Participant, is an ordinary loan. If the debt is that of a black Participant, it may besubject to measurement under Current Equity Interest.

9.3    In evaluating an instrument that has a hybrid nature including the characteristics of a debt, only that portion that represents a debt, will be measured under current equity interest. The remainder is measurable as an ordinary equity instrument.

10    Net Value

10.1    Ownership Fulfilment occurs:

10.1.1    on the release of all black Participants in a Measured Entity from all third-party rights arising from the financing their transaction with the Measured Entity; or

10.1.2    if all black Participants in the Enterprise have never been subject to any such third-party rights.

10.1.3    A score of 7 points for Net Value is a requirement for awarding the Ownership Fulfilment point

11    The Bonus Points

11.1    A Measured Entity with 25% black Economic Interest, can receive a maximum of 2 bonus points for a 10% holding of Economic Interest by black new entrants.

11.2    A Measured Entity with 25% black Economic Interest, can receive a maximum of 1 bonus point for a 10% holding of Economic Interest by black Participants in:

11.2.1    Employee Ownership Schemes;

11.2.2    Broad-Based Ownership Schemes; and

11.2.3 Co-Operatives.

Annexe 100A – Examples of Mandated Investments

Description of investment

Investments made by or for a collective investment scheme as defined in the Collective Investments Scheme Control Act of 2002

Investments made by or for a pension fund as defined in the Pension Fund Act of 1956

Investments made by or for a medical scheme as defined in the Medical Schemes Act of 1998 out of member’s funds

Investments made by or for long-term insurers as defined in the Long-Term Insurance Act of 1998 out of policyholder funds

Investments made by or for a friendly society as defined in the Friendly Societies Act of 1956

Investments made by or for a bank as defined in the Banks Act of 1990 out of depositor funds as opposed to own reserves

Investments made by or for a mutual bank as defined in the Mutual Banks Act of 1993 out of depositor funds as opposed to own reserves

Portion Subject to Exclusion Principle

full value

full value

portion recorded as made out of member’s funds portion recorded as made out of policyholder funds full value

depositor portion determined by apportioning investment in the ratio that depositor funds to own reserves;

depositor portion determined by apportioning investment in the ratio that depositor funds to own reserves;

0

Vy

Annexe 100(B)

RULES ON CERTAIN TYPES OF ENTERPRISES 1    Rules for Broad-Based Ownership Schemes:

1.1    The following rules apply to Broad-Based Ownership Schemes:

1.1.1    the Management Fees of the scheme must not exceed 15%:

1.1.2    the constitution of the scheme must record the rules governing any portion of Economic Interest received and reserved for future distribution or application;

1.1.3    at least 85% of the value of benefits allocated by the scheme must accrue to black people;

1.1.4    at least 50% of the fiduciaries of the scheme must be independent persons having no employment with or direct or indirect beneficial interest in the scheme;

1.1.5    at least 50% of the fiduciaries of the scheme must be black people and at least 25% must be black women;

1.1.6    the chairperson of the scheme must be independent; and

1.1.7    on the winding-up or termination of the scheme, all accumulated Economic Interest must be transferred to beneficiaries or an entity with similar objectives.

2    Rules for Employee Share Ownership Schemes:

2.1    The following rules apply to Employee Share Ownership Schemes (ESOP);

2.1.1    the scheme constitution must define the Participants and the proportion of their claim to receive distributions;

2 1.2 a written record of the name of the Participants or the use of a defined class of natural person satisfies the requirement for identification;

2.1.3    a written record of fixed percentages of claim or the use of a formula for calculating claims satisfies the need for defining proportion of benefit; and

2.1.4    the fiduciaries of the scheme must have no discretion on the above mentioned terms; and

2.2 The Participants must take partin:

2.2.1    appointing at least 50% of the fiduciaries of the scheme;

2.2.2    managing the scheme at a level similar to the management role of shareholders in a company having shareholding;

2.2.3    the constitution, or other relevant statutory documents, of the scheme must be available, on request, to any Participant in an official language in which that person is familiar; and

2.2.4    All accumulated Economic Interest of the scheme is payable to the Participants at the earlier of a date or event specified in the scheme constitution or on the termination or winding-up of the scheme; and

2.2.5    the scheme fiduciaries must present the financial reports of the scheme to Participants yearly at an annual general meeting of the scheme.

3    Rules for Trusts

3.1    The qualification criteria for the recognition of Trusts is as follows:

3.1.1    The trust deed must define the beneficiaries and the proportion of their entitlement to receive distributions;

3.1.2    A written record of the names of the beneficiaries or the use of a defined class of natural person satisfies the requirement for identification;

3.1.3    A written record of fixed percentages of entitlement or the use of a formula for calculating entitlement satisfies the need for defining proportion of benefit and

3.1.4    The trustees must have no discretion on the above mentioned terms; and . On winding-up or termination of the trust all accumulated Economic Interest must be transferred to the beneficiaries or to an entity representing the interest of the participants or class of beneficiaries.

4    Additional Criteria Applicable to Trusts:

4.1    For a Measured Entity to obtain the maximum points on it’s Ownership scorecard from shareholding by a Trust, the Measured Entity must be in possession of a certificate issued by a competent person to the effect:

4.1.1    That the Trust was created for a legitimate commercial reason which must be fully disclosed; and;

4.1.2    That the terms of Trust do not directly or indirectly seek to circumvent the provisions of the Codes and the Act.

5    Additional Criteria Applicable to Broad Based Ownership Schemes and Employee Ownership Schemes:

5.1. For a Measured Entity to obtain the maximum points on it’s ownership scorecard, the following additional requirements must be met by a Broad-Based Scheme or Employee Share Ownership Scheme:

5.1.1    a track-record of operating as a Broad-Based Ownership Scheme or Employee Share Ownership Scheme, or in the absence of such a track-record demonstrable evidence of full operational capacity to operate as a Broad-Based Ownership Scheme or Employee Share Ownership Scheme;

5.1.2    Operational capacity must be evidenced by suitably qualified and experienced staff in sufficient number, experienced professional advisors, operating premises and all other necessary requirements for operating a business.

 

Annexe 100 (C)

1 Measurement of Voting Rights

1.1 The calculation of the ownership indicators provided for in paragraphs 2.1.1 and

2.1.2 is as follows:

A = B/C * D

Where

A is the score achieved for the Enterprise for the measured ownership indicator

B is the percentage that Exercisable Voting Rights in the hands of the category of Participants who are black people in that Enterprise holds to all Voting Rights held by all Participants of that Enterprise

C is the percentage compliance Target for Exercisable Voting Rights for the applicable measured ownership indicator in paragraph 2.1

D is the Weighting points allocated to the applicable measured ownership indicator in paragraph 2.1

1.2 If an Enterprise gains a score in the formula above that is more than the Weighting points in paragraph 2.1, that Enterprise will only receive the Weighting points.

2 Measurement of Economic Interest

2.1    The calculation of the ownership indicators provided for in paragraphs 2.2.1 to 2.2.3 is as follows:

A = B/C * D

Where

A is the recognisable percentage of black Participant claim to Economic Interest in the Enterprise

Bis the percentage that Economic Interest to which Participants who fall within the category of black people in that Enterprise holds to all Economic Interest to which all Participants of that Enterprise

C is the percentage compliance Target for Economic Interest for the applicable measured ownership indicator in paragraph 2.2

D is the Weighting points allocated to the applicable measured ownership indicator in paragraph 2.2

2.2    If an Enterprise gains a score in the formula above that is more than the Weighting points in paragraph 2.2. that Enterprise will only receive the Weighting points.

3 Calculation of Deemed Net Value

In calculating the “Deemed Net Value’ referred to in paragraph 4 below, the following formula applies:

A = (B-C)/D

Where

A is the Deemed Net Value

B for the purposes of paragraph 4 below is the value of the Equity Instruments relevant to the calculation, determined on the date of measurement

B for the purposes of paragraph 5 below is the value of the Equity Instruments relevant to the calculation, determined on the date of sale or loss

C for the purposes of paragraph 4 below is the carrying value of any acquisition debts of the relevant black Participants on the date of measurement

C for the purposes of paragraph 5 below is the carrying value of any acquisition debts of the relevant black Participants on the date of sale or loss

D for the purposes of paragraph 4 and 5 below is the value of the Measured Entity on the date of measurement

D for the purposes of the exclusion principle is the value of the measurable portion of the Measured Entity on the date of measurement

4 Net Value

4.1 The “Net Value” points in paragraph 2.3.2 is the lower result of Formula A and Formula B below:

Formula A

A = B *(1/(25%*C)) * 7

Where

A is the score under paragraph 2.3.2

B is the Deemed Net Value for all black Participants in the Measured Entity determined

using Formula 3

C is the time-based graduation factor of the Economic Interest compliance target outlined

below:

  • 10% for the first year after the current equity interest date.
  • 20% for the second year after the current equity interest date.
  • 40% from the first day of the third year after the current equity interest date to the last day of the fourth year after the current equity interest date.
  • 60% from the first day of the fifth year after the current equity interest date to the last day of the sixth year after the current equity interest date.
  • 80% from the first day of the seventh year after the current equity interest date to the last day of the eighth year after the current equity interest date.
  • 100% from the first day of the ninth year after the current equity interest date to the last day of the tenth year after the current equity interest date.

 


Formula B

A = B/C * 7


Where

A is the score under paragraph 2.3.2

B is the percentage Economic Interest in the Measured Entity of black Participants C is the target for the ownership indicator in paragraph 2.2.1

4.2    If an Enterprise gains a score in paragraph 4.1 that is more than the Weighting points in paragraph 2 3.2, that Enterprise will only receive the Weighting points.

4.3    Ownership Fulfilment occurs:

4.3.1 on the release of all black Participants in a Measured Entity from all third-party rights; or

4.3    .2 when black Participants have never been subject to any third-party.

4.4    A minimum score of 7 points for Current Equity Interest is a requirement for the award of the Ownership Fulfilment point.

5 Calculation of the Recognition of Ownership after the Sale or Loss of Shares by Black Participants:

The calculations in paragraphs 3 .5.1 and 3.5.3 use the following formula:

A = B x C x D

Where

A is the percentage of rights of ownership that survive the sale of an Equity Instrument by a black Participant in paragraph 3.5

B is the percentage of rights of ownership for each of indicators in the ownership scorecard that were attributable to the black Participant immediately before his or her sale or loss

C is the Net Value percentage provided for in paragraph 3 above undertaken for the Equity Instruments sold or lost by the black Participant on the date of the sale or loss. The value of the Enterprises is measurable as at the date of measurement

D is the most recently determined BEE Recognition Level of the Measured Entity(which must be less than 1-year old) based on its Generic Scorecard result for all Elements other than ownership determined using statement 000

6 The Bonus Points

6.1 The calculation of the bonus points uses the following formula:

A = B/C * D/25 * E

Where

A is the bonus points awarded in paragraphs 2.4.1 and 2.4.2

B is the percentage that Economic Interest to which Participants who fall within that category of black people in that Enterprise holds to the total of all Economic Interest of that Enterprise

C is the percentage compliance Target for Economic Interest for the measured ownership indicator in paragraph 2.4

D is percentage of the Economic Interest in the Measured Entity of black people up to a maximum of 25%

E is the Weighting points allocated to the applicable measured ownership indicator in paragraph 2.4

 

CODE SERIES 100: THE MEASUREMENT OF THE OWNERSHIP ELEMENT OF BROAD-BASED BLACK ECONOMIC EMPOWERMENT

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