Practice note on employee ownership and other broad-based ownership strcutres published on 18 may 2021

The Practice Note clarifies how Broad-Based Ownership Schemes (“BBOS”), Employee Share Ownership Programmes (“ESOPs”), Trade Unions, Investment Holding Companies that are BBOS, Not for Profit Companies (“NPCs”) and Trusts, (collectively referred to as “Discretionary Collective Enterprises”) should be interpreted in light of the B-BBEE Codes of Good Practice (“Codes”).

There existed a level of uncertainty regarding the implementation of Discretionary Collective Enterprises largely caused by the B-BBEE Commissioner’s (“Commissioner”) interpretation of the Codes in various announcements made to the effect, according to the Commissioner, that ESOPs and other BBOS did not constitute “real black ownership”.

The Practice Note now brings clarity to the uncertainty by providing that:

• a defined class of black beneficiaries satisfies the ownership requirements under the Codes, meaning that it is not necessary to identify specific persons. ESOPs and worker ownership schemes provide that a specific class of black employees is sufficient to satisfy the requirements of the Codes;
   
• evergreen ESOPs which provide infinite benefits to workers of a company also satisfies the requirements of the Codes;
   
• minors are not excluded from ownership calculations and determination of Discretionary Collective Enterprises;
   
• distributions to beneficiaries may be in cash or kind. Economic interest on the ownership scorecard may be claimed for either one, or both;
   
• where a scheme provides for a formulae to be used when determining the proportion of a claim of a defined class of persons or the entitlement of individuals, and the fiduciaries (such as trustees) are not afforded a discretion to deviate from the formula, such scheme will comply with the Codes;
   
• voting rights may be exercised by fiduciaries on behalf of beneficiaries; and
   
• should a beneficiary partake in a distribution at any point in time, it will not automatically entitle such beneficiary to partake in future distributions as well.

The clarification provided by the Practice Note is a welcome addition to the practice for the avoidance of further uncertainty in relation to the above. What remains is for the Commissioner to apply the Practice Note in making determinations whether Discretionary Collective Enterprises fulfil the requirements of the Codes.