Selling a business instead of shares
Most ownership deals turn on selling shares to black shareholders. But some businesses cannot or will not do that — the shareholders’ agreement forbids new shareholders, the founders are not ready to dilute, or the group simply does not want outside owners on the share register. If that is you, there is another route to ownership points: instead of selling shares, you sell a whole business — a division, a branch or a product line that can stand on its own — to a black-owned buyer, and claim ownership recognition for the value of that sale.
The rules for this live in Statement 102 of the Amended Codes, published as General Notice 408 in Government Gazette 38766 on 6 May 2015 — the Statement that lets a measured entity earn ownership recognition for the value of a sale of a business to black people, as an alternative to placing shares in black hands. You can read it on the sources.
Do not underestimate what you are signing up to. The conditions are real, and there are more of them than people expect. Read as a checklist, they are:
- The transaction must create viable and sustainable businesses or business opportunities in the hands of black people. A shell that folds the moment your support stops does not count.
- It must transfer critical and specialised skills, managerial skills and productive capacity to black people. You are handing over the ability to run the business, not just its name.
- What you sell must be a separately identifiable related business, with no unreasonable limitations on who its clients or customers may be, and with clients, customers or suppliers other than you. A “business” that can only ever sell back to you is not a real one.
- The black shareholders must hold it for at least three years.
- Any outsourcing arrangement between you and the business sold must be negotiated at arm’s length on a fair and reasonable basis, and the transaction should be independently valued.
- Transfers by licence or lease that do not confer unrestricted ownership do not count, and neither do sales of franchises by a franchisor to a franchisee.
- Existing contracts between the parties must stay in effect on market-related terms and at market-norm service levels — you cannot sweeten the deal after the sale.
- You cannot count the same transaction twice by also claiming it under enterprise and supplier development.
All of those conditions are set out in Statement 102, paragraphs 3.1.2 and 3.2.1 to 3.2.5 (General Notice 408 in Government Gazette 38766, 6 May 2015). You can read the provision itself on the sources.
Equity equivalents for multinationals
Some multinationals are simply not allowed to sell shares in their local operations. Their global head office runs a worldwide policy against giving up equity in any country, and the South African subsidiary cannot break ranks. For those groups — and only those groups — the Codes offer an alternative to selling equity: an equity-equivalent investment programme, approved by the Minister, under Statement 103.
Instead of putting shares in black hands, the multinational invests in the South African economy in a way the Minister approves, and that investment earns the ownership points. The size of the required programme is measured against one of two benchmarks.
Under Statement 103, paragraphs 4.2.1 and 4.2.2 (General Notice 408 in Government Gazette 38766, 6 May 2015), the programme is measured against one of two targets: 25% of the value of the South African operations of the multinational, determined using a standard valuation method, or 4% of total revenue from its South African operations annually over the period of continued measurement. You can read the provision on the sources.
That much is well known. What trips groups up is the eligibility gate in front of it — and it is easy to miss.
The eligibility gate sits in the definition of “Global Practice” in Schedule 1 of the Codes (as replaced by General Notice 303 of 2019), read with Statement 103, paragraph 3.6. It means a globally and uniformly applied practice of a multinational that restricts the alienation of equity in, or the sale of businesses in, its regional operations — and that existed before the promulgation of the Act. Those are the load-bearing words: they rule out any policy adopted after 2004. You can read the definition on the sources.
In short: the equity-equivalent route is a genuine and valuable option, but a narrow one. It is for the multinational that is structurally barred from selling South African equity by a long-standing global rule — not for the group that simply prefers to keep its shares. If you are unsure which lawful ownership route fits your business, start with choosing a structure.
Frequently asked questions
Sometimes, yes. Statement 102 of the Amended Codes lets you sell a separately identifiable business — a division, a branch or a product line — to a black-owned buyer and claim ownership recognition for the value of that sale. But the conditions are demanding: it must create a viable, sustainable black-owned business, transfer real skills and productive capacity, and the black holders must keep it for at least three years. There must be no repurchase within three years and you must have no right to enforce one. It is a genuine disposal, not a paper exercise.
It is a route for the South African arm of a multinational that cannot sell equity. Instead of selling shares, the multinational applies to the Minister for approval of an equity-equivalent investment programme. The programme is measured against one of two targets: 25% of the value of its South African operations, or 4% of total South African revenue each year. Approval is at the Minister’s discretion.
No. There is a hard gate that is easy to miss. The route is limited to multinationals “subject to a Global Practice” — a globally and uniformly applied practice that restricts selling equity in its regional operations, and which existed before the Act was promulgated. A policy the group adopted since 2004 does not qualify, however genuinely it is applied. If your group can sell local equity but simply prefers not to, this route is not open to you.
No. When you sell a business under Statement 102 and claim ownership recognition, you cannot count the same transaction again under enterprise and supplier development. That would be double-counting, and it is expressly ruled out. Choose the route that gives you the better scorecard outcome — but you only get it once.