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Broad-Based Black Economic Empowerment Act, 2003 (Act No. 53 of 2003)

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Code Series 100: Measurement of the Ownership Element of Broad-Based Black Economic Empowerment

Statement 100: The General Principles for Measuring Ownership

3. Key measurement principles


3.1 General principles:
3.1.1 An Enterprise receives points for participation by black people in its rights of ownership, using the ownership scorecard in paragraph 2. 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: A company with shares; A close corporation; A co-operative; Any form of juristic person recognised under South African law; A partnership or other association of natural persons; A Broad-Based Ownership Scheme; An Employee Ownership Scheme; and A Trust.


3.2 The Flow-Through Principle:
3.2.1 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.
3.2.2 The method of applying the Flow-Through Principle across one or more intervening juristic persons is as follows: Multiply the percentage of the Participants 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 The result of this calculation represents the percentage of rights of ownership held by the Participant.


3.3 The Modified Flow-Through Principle:
3.3.1 The Modified Flow-Through Principle applies to any BEE owned or controlled company in the ownership of the Measured Enterprise.
3.3.2 In calculating Exercisable Voting Rights under paragraph 2.1.1 and Economic Interest under paragraph 2.2.1 thefollowing applies: Where in the chain of ownership, black people have a flow-through level of participation in excess of 50%, then only once in that chain may such black participation be treated as if it were 100% black.
3.3.3 The Modified Flow-Through Principle may only be applied in the calculation of the indicators in paragraphs 2.1.1 and 2.2.1. In all other instances, the Flow-Through Principle applies.


3.4 The Exclusion of specified entities when determining ownership:
3.4.1 When determining ownership in a measured entity, ownership held directly by organs of state or public entities must be excluded.
3.4.2 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
3.4.3 Despite paragraph 3.4.1 and 3.4.2, the Minister of Trade and Industry 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: 100% by Black People: 40% by Black Women: 10% by black designated groups; Without any acquisition debts; and Without any third-party rights.
3.4.4 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%.
3.4.5 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.
3.4.6 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 visa versa.


3.5 The recognition of ownership after the sale or loss of shares by black participants:
3.5.1 A 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: The black participant has held shares for a period of 3 years; Value must have been created in the hands of black people: Transformation has taken place within the measured enterprise.
3.5.2 Black participation arising from continued recognition of black ownership cannot contribute more than 40% of the score on the ownership scorecard.
3.5.3 In the case of a loss of shares by the black investor, the following additional rules apply: A written tripartite agreement between the Measured Enterprise, the black Participant and a lender must record the loan or security arrangement, unless the Measured Entity is the lender; and The period over which the points were allocated or recognised will not exceed the period over which the shares were held.
3.5.4 The ownership points under this paragraph that are attributable to the Measured Entity will be calculated by multiplying the following elements; The value created in black hands as a percentage of the value of the Measured Entity at the date of the loss of shares as a percentage of Measured Entity's value; The B-BBEE status of the Measured Entity based on the balanced scorecard at the date of measurement; and The ownership points that were attributable to the Measured Enterprise on the date of sale or loss.