There is a common misconception or misunderstanding that companies have regarding B-BBEE and the level that they will receive. Most companies believe that should they be 100% or 51% black-owned, they would receive an automatic level 1 or 2 based solely on their ownership and, that no other element in the B-BBEE scorecard must be complied with. However, when dealing with the subject of BEE, the starting point for any company will always be to consider which sector code it operates within and then, secondly, what the current annual turnover and the predicted annual turnover of the company are.
In terms of the Broad-Based Black Economic Empowerment Amendment Act 46 of 2013, a company, based on its turnover, will be classified into one of three types of entities for BEE, each of which is scored differently compared to the other. These entities are referred to as follows:
- A Generic Enterprise;
- A Qualifying Small Enterprise (QSE) and;
- Exempted Micro Enterprise (EME).
While the classification occurs, the sector in which the company operates must be considered, as this impacts the requisite turnovers for the different classifications of an entity.
For an entity to be classified as an EME, its annual turnover, in most sectors, must range between R0 – R10 Million per year. While in other sectors, it will vary between R0 – R5 Million per year.
While classified as an EME, the entity will receive an automatic level based on the ownership percentage of the entity. For example, as a 100% black owned entity, it will receive an automatic level 1, and as a 51%, Black-owned entity, it will receive an automatic level 2. Should the entity have less than 51% Black ownership, it will receive an automatic level 4. However, depending on the sector, this may have further requirements to maintain the automatic level received, e.g. the construction sector. If these additional requirements are not met, the entity will be penalised, and the automatic level it has received will be reduced.
For the entity to be classified as a QSE, its annual turnover must range between R10 – R50 Million per year or, again, as with EMEs in some sectors, the annual turnover will range between R5 – R35 Million per year, with more specific reference to the Road Freight Sub Sector Code. Once an entity has been classified as a QSE, a 100% and 51% Black-owned entity will receive an automatic level 1 or 2 respectively. Again, depending on the sector in which it operates, it may have further requirements to maintain this level received. If the entity has less than 51% black ownership, it will not be entitled to an automatic level. Instead, it will be scored on the relevant sectors’ B-BBEE scorecard elements and receive a certificate.
Lastly, should an entity have an annual turnover which exceeds R50 million, or, in some cases R35 million, it will be classified as a Generic entity. A Generic entity will not be entitled to an automatic level irrespective of the percentage of black ownership held within the entity. The result is that the entity will be scored on all elements of the sector-specific B-BBEE scorecard, which is more stringent than the QSE scorecard, and the level the entity receives will be based on the score it has achieved. Furthermore, as published, the Economically Active Population targets will play a vital role when determining contributions made and points achieved under the Management Control and Skills Development elements. Should the entity fail to be rated on the scorecard, it will not be issued with a level and thus be deemed a non-compliant entity.
Regarding all the above classifications of an entity, an affidavit or certificate will need to be issued to the entity, confirming the entity’s current B-BBEE level. If the entity cannot comply with this prerequisite, it will be deemed non-compliant, irrespective of whether it would have received an automatic level.
Therefore, the size of your business influences your B-BBEE rating and what is expected from you as a company to achieve a level which you desire.
Please contact your nearest SEESA office to assist your business with B-BBEE compliance. Alternatively, leave your name on our website and we will contact you.
About the Author:
JP Potgieter started his career at SEESA three and a half years ago and specialises in B-BBEE and Labour Law. He is a legal advisor that is an admitted attorney in the High Court of South Africa and the Kingdom of Lesotho.
- BROAD BASED BLACK ECONOMIC EMPOWERMENT AMENDMENT ACT 46 of 2013;
- GOVERNMENT GAZETTE, 1 DECEMBER 2017 NO. 41287 – AMENDED CODE SERIES CSC000: FRAMEWORK FOR MEASURING BROAD-BASED BLACK ECONOMIC EMPOWERMENT IN THE CONSTRUCTION SECTOR;
- GOVERNMENT GAZETTE, 21 AUGUST 2009 NO. 32511 – ROAD FREIGHT SUB SECTOR CODE FOR BBBEE.