The six questions to answer first
Before anyone draws a structure, answer these six questions. Most bad BEE deals are bad for the same reason — they were designed before these questions were asked. A structure drawn to answer the wrong question is expensive to unwind, and it usually surfaces the problem at the worst possible moment: in front of your verification agency, or on a tender you were counting on.
1. What do you actually need the rating for, and by when?
A specific tender has a deadline and a required level. That is a real brief you can design against. “Improving our BEE” is not — it has no deadline and no target, and it will produce a structure nobody has costed. Nail down the level you need and the date you need it by before anything else.
2. Which rules apply to you — the generic Codes or a sector code?
Most businesses are measured under the generic Codes of Good Practice. But a sector code — for construction, tourism, ICT, agriculture, financial services and others — displaces the generic Codes for businesses in that sector, and several set higher ownership targets. Designing to the generic 25 points when a sector code applies to you is designing to the wrong scorecard.
3. What size are you?
Size changes the whole calculation. If you are under R10 million in turnover you may need to do nothing at all — you are an Exempt Micro Enterprise, automatically Level 4. If you are under R50 million, a 51% black ownership holding on a flow-through basis takes you to Level 2 by affidavit. That last route sounds simple, but the affidavit carries a net-value catch that trips many owners — read what your size means and net value before you rely on it.
4. How much are you actually willing to give up?
This is the question people avoid. The ownership scorecard measures what it costs you — votes handed over, economic interest given up, and the net value that genuinely ends up in black hands. There is no way around that:
5. Who is the black partner, and what do they want?
Cash now, or a stake that grows? These are different problems with different answers. An employee scheme spreads a modest benefit across many staff. A strategic partner wants a meaningful, growing stake and usually a seat at the table. A community wants a lasting, broad benefit. If you do not know what the partner actually wants, you cannot choose the vehicle — and you risk building something they will not value.
6. Can anyone fund it?
If a black buyer has cash, or a bank or development finance institution will lend, whole routes open up. If the honest answer is nobody can fund it, you are choosing between giving shares away free and a notional structure that carries a pretend loan. Both are legitimate. Neither is free — giving shares away costs you the equity; a notional structure costs the black partner their net value until the notional debt is worked off.
A decision path from your position
Once you have answered the six questions, your position points to a starting point — not a finished structure, but the route worth exploring first. Find the line that matches you.
There is no single right structure. They differ mainly in who pays, who takes the risk, and how quickly the black shareholder genuinely owns something. The comparison below lays the lawful routes side by side.
| Structure | Who pays | Votes & money | Net value | Main risk |
|---|---|---|---|---|
| Cash sale | The buyer, in cash | Can be full from day one | No acquisition debt — the biggest advantage | Finding a buyer who has the cash |
| Vendor finance (seller loan) | You, by lending the price | Full votes and economic interest from day one | Builds only as shares outgrow the loan | Funding rate above the growth rate → fails around year nine |
| Notional vendor finance | Nobody, in cash | Full from day one; buyer can never owe anything | A notional balance reduces it much like a real loan | Partner may end up with nothing; treatment unsettled |
| Outside / preference-share funding | A bank or DFI | Depends on the terms (pref shares must be non-voting) | Debt-like pref shares erode it like a loan | Funder control; tax under ss 8E & 8EA of the Income Tax Act |
| Employee share scheme | You, by dilution | Can reach the 3-point designated-groups line | No acquisition debt if the shares are free-carried | Capped at 40% unless additional criteria met; must be genuinely run |
| Broad-based scheme / community trust | You, by dilution | Can reach the 3-point line | No acquisition debt if given free | 85%-to-black rule, 15% fee cap and independent-trustee governance |
| Non-profit company | You, by dilution | Depends on the scheme it houses | No acquisition debt if given free | A one-way vehicle; treatment depends on classification |
| Selling a discrete business | The buyer | Not applicable — recognised for the value sold | Not applicable | Three-year hold; no repurchase; no double-counting |
| Equity equivalents (multinationals) | You, by investment | Not applicable | Not applicable | Ministerial approval; the "Global Practice" eligibility gate |
There is no single right structure. They differ mainly in who pays, who takes the risk, and how quickly the black shareholder genuinely owns something. No structure that costs you nothing scores well — the scorecard was built to measure exactly what it costs you.
Not sure which line you are on? The interactive structure selector walks you through your size, funding and black partner and gives a grounded starting point.
Getting the sequence right
The order in which you do things matters more than people expect. Do these steps out of sequence — draft before you have decided what you will give up, or check the tax after signature — and you spend money fixing what a little discipline would have avoided. Seven steps, in order:
- Establish which code applies and what level you actually need. Generic Codes or a sector code; the level a specific tender or customer requires. This is the brief everything else is built to.
- Decide what you are willing to give up, in principle, before anyone drafts anything. Fix the number first. Drafting around an undecided appetite produces a structure you then have to renegotiate.
- Model the net value line for years one to ten. If the structure fails in year nine on the assumptions you believe, it will fail sooner on the assumptions you do not. Run net value before you commit to a funding rate.
- Get the tax position checked. This is not optional, and it is not something to do after signature. Preference-share funding in particular carries tax anti-avoidance rules that can change the economics.
- Take independent legal, tax, valuation and B-BBEE technical advice on the actual documents before you sign them. And do not ask the agency that will later rate you to design, optimise or pre-approve the structure — an accredited verification agency has to remain independent of what it verifies, and that kind of engagement is consultancy. You can properly ask a verification agency about evidence, methodology and readiness. Where you need an official interpretation, the route is a full-disclosure request to the B-BBEE Commission for a non-binding opinion.
- Check the major-transaction threshold and register within 15 days if you are above it. The Ministerial threshold for a “major B-BBEE transaction” is widely applied as R25 million. Above it, register with the Commission within 15 days of concluding the deal — and remember that registration is not approval.
- After closing, operate it — and re-run the model every year. Hold the meetings, keep the minutes, make the distributions, and re-run the net value model annually. A structure that is correct on paper and never operated is the one that fails a verification.
Questions to ask your adviser
You do not need to be an expert to test advice. These questions will tell you quickly whether the person advising you has thought the structure through. If the answers are vague, that is your answer.
About the structure
- What does this score on each of the three parts of the ownership scorecard — votes, economic interest and net value — and can you show me the calculation?
- What does the net value line look like in years one to ten? Show me year nine.
- Are we above or below the 3.2-point sub-minimum in every year? If we fall below it in any year, what happens to our level?
- Which annexe does this vehicle fall under — 100(B), 100(C) or 100(D) — and do we meet the additional criteria, or are we capped at 40%?
- Where does the 51% rule get applied in this structure, and what does it not reach?
About the black partner
- Can they vote at shareholders’ meetings, in their own name, from day one?
- What cash will they actually receive, in each of the next five years?
- What do they end up with at the end, on a realistic set of assumptions? And on a pessimistic one?
- Has anybody explained the structure to them independently of us?
- Can anything we do cause their rights to fall away?
About the risks
- Which of the fronting indicators does this structure touch, and how do we answer each one?
- Is there any side agreement, of any kind, that the verification agency will not see?
- Have you put this structure to our verification agency in writing, and what did they say?
- What is the tax treatment, and who has confirmed it?
- What has to happen every year for this to keep working, and who is responsible for it?
Frequently asked questions
Possibly not. A business with R10 million or less in turnover is an Exempt Micro Enterprise and is automatically treated as Level 4, with no scorecard to complete — you just need a sworn affidavit confirming your turnover. Bringing in black ownership can lift you to Level 2 or Level 1, but that is a choice to weigh against what it costs you to give up equity. Start with what you need the rating for and by when: a specific tender with a required level is a reason to move; “improving our BEE” on its own is not.
No. An accredited verification agency has to remain independent of what it verifies, so it cannot design, optimise or pre-approve the structure it will later rate you on — that is consultancy, and it compromises the rating. You can properly ask a verification agency about evidence, methodology and readiness. Where you need an official interpretation, the route is a full-disclosure request to the B-BBEE Commission for a non-binding opinion. Take your legal, tax, valuation and B-BBEE technical advice from independent advisers on the actual documents before you sign.
No. If the deal is above the Ministerial threshold for a major B-BBEE transaction — widely applied as R25 million — you must register it with the Commission within 15 days of concluding it. But registration is not approval. It is a notification obligation, not a stamp that says the structure is sound. The Commission can still investigate a registered transaction, and a structure that fronts is unlawful whether it was registered or not.
Ask: “What does this cost me, and what does the black partner actually get?” If the honest answers are “nothing much” and “not a lot”, the structure will not score — the ownership scorecard was built to measure exactly what it costs you — and you have a problem bigger than your scorecard, because a structure that gives the black partner nothing real is the kind that gets treated as fronting.