This article discusses the basics of EMEs, QSEs and Start-up Enterprises from a generic sector type aspect.
What is an Exempted Micro-Enterprise? It is an enterprise with an annual Total Revenue of R10 Million or less. An EME is deemed to have a B-BBEE Status of “Level Four Contributor” having a B-BBEE recognition level of 100%. The amended Codes of Good Practice have provided for enhanced B-BBEE recognition level for an EME where:
An EME, which is at least 100% black owned qualifies for elevation to “Level One Contributor” having a B-BBEE recognition level of 135%.
An EME, which is at least 51% Black owned qualifies for elevation to “Level Two Contributor” having a B-BBEE recognition level of 125%
An EME is allowed to be measured in terms of the Qualifying Small Enterprise scorecard if it wishes to maximise its points and move to a higher level.
What are the requirements for an Exempted Micro Enterprise?
An EME does not need to be verified, either by an accounting officer or verification professional.
An EME is only required to obtain a sworn affidavit or Companies and Intellectual Property Commission (CIPC) Certificate on an annual basis, confirming the following:
Annual Total Revenue of R10 million or less
Level of Black ownership
Who is eligible to be a Qualifying Small Enterprise (QSE)?
In terms of the amended Codes of Good Practice of the B-BBEE Act that came into effect on 1st of May 2015, a QSE is a Measured Entity with an annual Total Revenue of between R10 million and less than R50 million.
Categories of QSEs
A QSE that is 100% black-owned will automatically have a level 1 rating and a QSE that is 51% black-owned will automatically have a level 2 rating on their B-BBEE status.
A Measured Entity that falls under this category, must comply with at least two of the priority elements in the B-BBEE Generic Scorecard:
Ownership is compulsory; and either
Enterprise & Supplier Development or Skills Development
QSEs that are at least 100% or 51% black-owned must use a sworn affidavit template available on the Department of Trade and Industry and Competition’s (the dtic’s) or a Companies and Intellectual Property Commission (CIPC) certificate on an annual basis.
The purpose of this intervention is to reduce the cost of compliance and the cost of doing business for small and medium businesses in South Africa. Generic QSEs that are not at least 100% or 51% black-owned must be verified using the QSE scorecard and obtain a valid B-BBEE certificate from a South African National Accredited System (SANAS) accredited Verification Professional on an annual basis.
The eligibility of an entity that falls under a specific sector to qualify as a QSE is set by the Sector Charter in which it operates in. The following are the gazetted sector Charters:
Financial Sector Charter
Information and Communication Technology (ICT) Charter
Property Sector Charter Turnover
Chartered Accountancy Sector Code
Integrated Transport Sector Codes
Forest Sector Code
Marketing, Advertising and Communication (MAC) Sector Code
Tourism Sector Code
The above listed Sector Code Charters can be accessed on the dti’s website, which indicate the qualification criteria for QSEs for a particular sector-based entity.
Start-up Enterprises and B-BBEE
The Codes of Good Practice defines Start-up Enterprises as recently formed or incorporated entities that have been in operation for less than a year, which is a departure from the norm where entities can claim start-up status for three to five years. A Start-up Enterprise does not include any newly constituted or restructured enterprise which is merely a continuation of a pre-existing enterprise or business.
Eligibility as a Start-up Enterprise
In order to qualify as a Start-up Enterprise, the enterprise must provide an independent confirmation in terms of paragraph 4.5 of Codes Series 000. Start-up Enterprises are measured as Exempted Micro-Enterprise (EME) as per Codes Series 000 for the first year following their formation or incorporation.
Exemption from verification process
EMEs are not required to undergo a verification process with verification agencies but only required to obtain sworn affidavits
in accordance with the template provided by the dtic confirming the following:
• Details of the deponent
• Whether management accounts and financial are being used;
• Financial year of the financial information;
• Annual Total Revenue of R10 million or less; and
• Level of black ownership of the entity
EMEs can alternatively also obtain a certificate from the Companies and Intellectual Property Commission confirming that they are a startup and information can be obtained at www.cipc.co.za.
Automatic level for Start-up as EME
Further to the exemption from the verification process explained above an EME which is at least 51% Black owned qualifies for elevation to “Level Two Contributor” having a B-BBEE recognition level of 125%, An EME, which is at least 100% black owned qualifies for elevation to “Level Two Contributor” having a B-BBEE recognition level of 135%.
Specific requirements for Start-up Enterprise in tenders/contractors/other economic opportunities.
Despite the above-mentioned exemption from verification and enhanced status for EMEs and by extension Start-up Enterprises, Start-up Enterprises must submit a Qualifying Small Enterprise (“QSE”) scorecard when tendering for any contract, or seeking any other economic activity covered in terms of Section 10 (1) of the B-BBEE Act, which have a value higher than R10 million but less than R50 million, and for contracts of R50 million or more they are required to submit a Generic scorecard applicable to large entities. This means a Start-up Enterprise will require a verification by accredited verification agency in these circumstances and the presentation of such scorecard must be based on annualised data.