A Joint Venture (JV) is a business arrangement between two or more entities where they agree to pool their resources for the purpose of accomplishing a specific business task.
A JV is its own entity, separate and apart from the participants to the agreement.
The reason behind forming a JV include business expansion, development of new products or moving into new markets.
A JV will require its own Broad-Based Black Economic Empowerment (B-BBEE) certificate if they would like to tender or enter into a contract that requires a B-BBEE Certificate.
The documents necessary to do the rating of a JV is the BEE certificates for all the parties entering into the JV as well as the JV agreement.
To determine which scorecard will be applicable to the JV all the turnovers of the parties in the JV will be consolidated. This determines whether the JV will be rated as a QSE or Generic Entity. Joint Ventures can be a great tool to use to increase B-BBEE Scores by joining forces with Black Owned companies thus increasing your Ownership. If you have a suitable Joint Venture partner, with a decent B-BBEE score, the overall score that you will achieve in the Preferential Procurement Point System can be much higher than going into the tender alone. When bidding through a Joint Venture, the Joint Ventures must submit a Consolidated B-BBEE certificate if it is not an incorporated entity when responding to tenders. You will need to obtain a new B-BBEE certificate for the Joint Venture which consolidates each participant’s B-BBEE status level. You apply for a Consolidated B-BBEE certificate at your B-BBEE Verification Agency who will issue the Consolidated B-BBEE certificate after combining the Joint Venture partners’ B-BBEE Certificates.
In May 2019, the DTI released amendments to the Codes of Good Practice. Joint Ventures are referred to in Revised Code 000, Statement 000: General Principles.
A new section on Eligibility of Joint Ventures is included and provides guidance on how to calculate a consolidated BEE Certificate for a JV.
Note the following:
• A consolidated verification certificate is required.
• The consolidation is based on the weighting as defined in the joint venture agreement.
• The respective scores are weighted according to their proportionate share in the joint venture.
• A joint venture certificate is valid for 12 months and only applicable to a specific project.
• Economic Interest and Voting Rights are determined and may flow through to the joint venture as per the respective partners Economic Interest and Voting Rights as determined by the joint venture agreement.
Below is a summary table of the new provisions.
Eligibility of a Joint Venture
7.2 The measurement of Unincorporated Joint Ventures will be done as follows: Unincorporated Joint Ventures are required to compile a consolidated verification certificate. A consolidated verification certificate will consolidate the verified compliance data of joint venture partners in accordance with paragraph 7.3 below as if those Measured Entities were a single Measured Entity. Clause inserted
7.3 The consolidation of compliance data shall be based on a weighting in accordance with the joint venture agreement relevant to the specific joint venture. Therefore, should two companies enter into an Unincorporated Joint Venture their respective scores in terms of the relevant Code of Good Practice will be weighted according to their proportionate share in the joint venture and added together for a combined score out of 100. Clause inserted
7.3.1 Should a company qualify in terms of the Qualifying Small Enterprise Scorecard its B-BBEE score out of 100 must be used to calculate the consolidated score. Clause inserted
7.3.2 51% Black Owned EMEs and 51% Black Owned QSEs will qualify for a score of 95 points while 100% Black Owned EMEs and 100% Black Owned QSEs will qualify for a score of 100 Points. Clause inserted
7.3.3 EME’s other than those in paragraph 7.3.2 above will qualify for a score of 85 Points. Clause inserted
7.3.4 The JV B-BBEE Certificate is valid for 12 Months and only applicable to a specific Project. Clause inserted
7.3.5 Notwithstanding the B-BBEE Status Level attributed to the JV in terms of the above mechanism the black ownership of the respective partners may be flowed through to the JV in proportion to the respective JV partners’ economic interest and voting rights in the JV as determined by the JV agreement. Clause inserted
Author Craig Tonkin