5 years ago we started being concerned about some educational trusts, employee trusts and broad based schemes. Not because we talk on behalf of govt or anyone else, but because we saw the huge risk of our clients earning zero points for doing lots of work, and wasting money when not done correctly.
5 years later we are seeing others catching up. Some verification agencies have started refusing to award points for trusts unless the trust can show net value in the hands of black people.
5 years ago we knew how this would turn out – not because we wanted it, but because we knew what the codes were saying, and how to become compliant.
5 years ago we knew that the dti and BEE Commission would eventually catch up. We knew that other people would continue recommending a strategy that was unsustainable and would eventually hurt their clients.
Now that some agencies are picking up problems with the trusts and refusing to award points, it becomes interesting. Many lawyers/advocates tried to give confidence to their clients by stating that they would go to court against the dti if the minister ever “stopped” the schemes. The landscape has changed. The minister has done nothing. It is the verification industry, as we had forecast 5 years ago that is ceasing awarding net value points.
Many companies were told and thought that these trusts would be the answer to their problems. The promise was that they could “sell” 51% or 25% of their business while still retaining their business. The reality is that they ended up GIVING their shares away to a trust, at far bigger costs than if they had done it right.
One of the phrases we most dislike in the BEE industry is “give your business away”. The only people who should “give their business away” or offer 100% vendor financing are those who value their business at nothing. All other businesses have value and if or when you decide to SELL shares you should NEVER give the shares away. Yet, so many people thought that a trust where you give shares to your own educational trust was the panacea to all problems. It was not. It is not.
If you are going to dispose of shares, a far better option is to receive money for those shares and of course, receive the best BEE recognition. There are many people who want to buy into businesses. There are many people who have the funds to pay for those shares. There is a lot of money available for genuine investors from many different funds. There are lots of competent business people who will add value and pay money for shares.
Isn’t this a better option than to give shares to a trust and end up with no BEE points and many problems? In any event, even if the trusts did earn points, it still raises problems when the company disposes of shares or the trusts sells its shares. The original owners lose!
The reality is that many businesses do need to improve their BEE status and must seriously consider ownership. Ownership is one element but never forget the other elements.
We are holding a special seminar of how to sell shares in your business, how to source multiple suitors to get the best fit and the most money. Our partner, Deal Leaders Africa have enormous experience in selling businesses and know how to get the best deal.
Join us on 28 September for a breakfast seminar.
Venue: 435 Rugby Avenue, Ferndale
Time: 7:30 to 11:30
Cost: R999 incl vat
Topic: How to sell part or all of your business for profit
Guest Speakers: Keith Levenstein (Chairman of EconoServ) Lianne Friedman (CEO of EconoServ), Andrew Bahlmann (MD of Deal Leaders Africa)
- What you need to do with regards to BEE to improve your business
What the codes require of ownership
Why education and other trusts could fall foul of the Codes.
How to go about the sale of shares
What to look for in a potential buyer
How to get the maximum price for your shares and the best fit
Please email email@example.com to RSVP.
Look out for our next information packed newsletter. Call us for expert help and advice to achieve successful transformation and not fall foul of the provisions of the Act.
Lianne and the EconoServ Team
Related Tag: BEE Advisors