The proposed changes to the Broad-Based Black Economic Empowerment (“B-BBEE”) codes now intend to make “ownership” a compulsory priority element.

Around 95% of companies fall into the Exempt Micro-Enterprises (“EME”) category.  However, an EME that is 100% owned by black people automatically qualifies as a level 1 contributor and an EME that is more than 50% owned by black people automatically qualifies as a level 2 contributor. EMEs that are black owned will gain a distinct competitive advantage.

Additionally, if the amendments are passed in their current form, failure to comply with the minimum threshold means that the rating (for large enterprises) will drop two levels in status, and Qualifying Small Enterprises (“QSEs”) will drop one level. Rather than face the consequences, some companies may find fronting to be an appealing alternative.

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Written by Tashmir Singh, Schoeman Attorneys (Cape Town)