The Event, Technical and Production Services Industry B-BBEE Sector code Scorecard – Ownership

This is the third article in a series of articles discussing the Event, Technical, and Production Services Industry B-BBEE Sector Code Scorecard.

In this article the Ownership Element will be discussed in two parts as the detail is extensive.

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

KEY MEASUREMENT PRINCIPLES

General principles:

An Enterprise receives points for participation by black people in its rights of ownership, using the ownership scorecard above. 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:

1. a company as defined in the Companies Act of 2008 (as amended);
2. a close corporation;
3. a co-operative;
4. any form of a juristic person recognised under South African law;
5. a partnership or other association of natural persons;
6. Broad-Based Ownership Scheme;
7. an Employee Ownership Scheme; and
8. a Trust

SUB-MINIMUM REQUIREMENTS

A measured entity is required to achieve a minimum of 40% on Net Value Points (i.e. 8 points) based on Annexe ETPSI-100 (A) paragraph 4 of this statement.

Non-compliance with this sub-minimum target will result in the achieved B-BBEE status level being discounted in accordance with paragraph 3.4 in Statement-000.

FLOW-THROUGH PRINCIPLE

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.

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

a. Multiply the percentage of the Participant’s 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
b. the result of this calculation represents the percentage of rights of ownership held by the Participant.

MODIFIED FLOW-THROUGH PRINCIPLE

1. A measured entity applying this modified flow-through principle cannot benefit from the Exclusion Principle.
2. The Modified Flow-Through Principle applies to any BEE-owned or controlled company in the ownership of the Measured Enterprise.
3. In calculating Exercisable Voting Rights and Economic Interest the following applies: 3.1 Where in the chain of ownership, black people have a flow-through level of participation in excess of 51%, then only once in that chain may such black participation be treated as if it were 100% black.
   3.2 The Modified Flow-Through Principle may only be applied in the calculation of the indicators in paragraphs 2.1.1 and 2.2.1 of the above table. In all other instances, the Flow-Through Principle applies.

EXCLUSION OF SPECIFIED ENTITIES WHEN DETERMINING OWNERSHIP

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

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.

B-BBEE FACILITATOR STATUS

Despite the above exclusions, the Minister may by notice in the Gazette, designate certain Public Entities as BEE Facilitators. In calculating their Ownership score, Measured Enterprises must treat BEE Facilitators as having rights of Ownership held:

1. 100% by Black People;
2. 40% by Black Women;
3. 10% by black designated groups;
4. without any acquisition debts; and
5. without any third-party rights.

MANDATED INVESTMENTS

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%.

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.

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 vice versa.

RECOGNITION OF OWNERSHIP AFTER THE SALE OR LOSS OF SHARES BY BLACK PARTICIPANTS

1. The 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: 1.1 The black participant has held shares for 3 years;
   1.2 Net value based on the Time-Based Graduation Factor as per ETPSI-100 (E) must have been created in the hands of black people: 1.2.1 transformation has taken place within the Measured Entity using the B BBEE Recognition Level from the period of entry of black participants to the exiting period.
2. Black participation arising from continued recognition of Black ownership cannot contribute more than 40% of the score on the ownership scorecard. 2.1 In the case of a loss of shares by the black investor, the following additional rules apply. 2.2 A written tripartite agreement between the Measured Entity, the Black Participant, and a lender must record the loan or security arrangement unless the Measured Entity is the lender; and
   2.3 The period over which the continued recognition points are allocated or recognised after the sale or loss of shares will not exceed the period over which the shares were held.
3. The ownership points under this paragraph that are attributable to the Measured Entity will be calculated by multiplying the following elements; 3.1 The value created in the hands of Black participants as a percentage of the total value of the Black participants’ shareholding in the Measured Entity at the date of sale or loss of shares;
   3.2 The B-BBEE status of the Measured Entity based on the balanced scorecard at the date of measurement; and
   3.3 The ownership points attributable to the Measured Entity on the date of sale or loss of shares.

This concludes part one of the Ownership Scorecard. Part two will discuss BROAD-BASED OWNERSHIP SCHEMES AND EMPLOYEE SHARE OWNERSHIP PROGRAMMES, PRIVATE EQUITY FUNDS, SECTION 21 COMPANIES AND COMPANIES LIMITED BY GUARANTEE, TRUSTS, OPTIONS AND SHARE WARRANTS, and EQUITY INSTRUMENTS CARRYING PREFERENCE RIGHTS as well as the applicable rules.