THE IMPACT OF THE NEW BBBEE CODES OF GOOD PRACTICE ON YOUR BUSINESS

The compilation and verification of a scorecard for an entity in terms of the Broad-Based Black Economic Empowerment (BBBEE) Act is done according to the Codes of Good Practice (the Codes) issued by the Department of Trade and Industry (the dti). The Codes have been amended and the new Codes were gazetted on Friday 11 October 2013. These changes will have a significant effect on the BBBEE strategy of businesses and careful consideration will have to be given to adjustments in this area.

Major changes to the previous Codes include:

1. The seven elements on the scorecard are reduced to five elements and the weighting of each element has been adjusted as follows:
   • Ownership (25 points weighting)
   • Management Control (15 points weighting)
   • Skills Development (20 points weighting)
   • Enterprise and Supplier Development (40 points weighting)
   • Socio-Economic Development (5 points weighting)
2. The total score will now amount to 105 instead of the previous 100.
3. The elements Ownership, Skills Development and Enterprise and Supplier Development are now categorised as priority elements, which means that certain minimum requirements are set for these elements. Large enterprises are required to comply with all the priority elements, whereas Qualifying Small Enterprises (QSEs) have a choice to comply with Ownership and one of the remaining priority elements.
4. If the minimum requirements set for priority elements are not met, the actual level obtained will be discounted by one level.
5. The limits for Exempt Micro-Enterprises (EMEs) have been adjusted to enterprises with an annual turnover of between R0 and R10 million (unless a sector charter applies). EMEs will still be deemed to be level four contributors.
6. QSE limits have been adjusted to enterprises with an annual turnover of between R10 million and R50 million (unless a sector charter applies).
7. EMEs and QSEs with black ownership of more than 51% will automatically qualify as level two contributors.
8. EMEs and QSEs with black ownership of 100% will automatically qualify as level one contributors.
9. Start-up enterprises will still be measured as EMEs during the first year following the formation of the enterprise.

There will be a twelve-month period from 11 October 2013 to 10 October 2014 during which businesses may choose to have their scorecard compiled and verified under either the old Codes or the new Codes. The purpose of this is to give businesses a chance to align and implement their BBBEE strategy to comply with the new Codes. Sector charters also have to align to the new Codes, but it is unclear whether it will be possible or even required to do this during the twelve-month period.

It is crucial to seek expert advice when adjusting any entity’s BBBEE strategy in order to avoid costly mistakes and ensure maximum benefit for the business, while properly complying with the relevant BBBEE legislation. For instance, enterprises that previously relied on an annual Socio-Economic Development grant in order to obtain a required BBBEE level will have to significantly adjust this amount.

Only qualified verification agents accredited under IRBA or SANAS may conduct independent verifications and issue the applicable certificate.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.