These four examples show the mechanics of the ownership scorecard on assumed facts, using a business worth R100 million (except where a different figure is stated). They are the most useful teaching tool on this hub, because B-BBEE ownership only becomes real once you put numbers to it. But every input below is an assumption, and three of them are worth naming before you read on.
The ownership scorecard is worth 25 points in total, split across voting rights, economic interest, a designated-groups line, new entrants and net value. If you have not yet met the net value concept — the value the black participants actually hold, after the debt used to buy their shares is taken off — read that page first; it does most of the heavy lifting in three of these four examples.
1 — A cash sale
Start with the cleanest possible deal, because it shows what “good” looks like before any funding is layered on. Four black individuals buy 51% of a R100 million business for R51 million in cash. Black women make up 40% of the group. All four are new entrants — none has held an equity instrument in an enterprise worth more than the threshold before. There is no debt, so nothing is deducted in the net-value calculation. We measure in year one.
That is the lesson of the cash sale: with no debt, the full 8 net-value points fall out automatically, and everything else follows. The three missing points sit on one line, and there is an obvious way to recover them.
2 — The same deal, funded
Now take the identical deal and fund it, which is how most real transactions are done: the seller cannot expect a black buyer to have R51 million in cash. So you lend the R51 million at 10% a year. The shares are pledged as security, but the black shareholders keep their votes (so voting points are unaffected). Ninety percent of the dividends go to repaying the loan, and 10% trickles through to the shareholders in cash. The business grows at 6% a year. Assume the company declares dividends of R8 million a year, of which R4.08 million is attributable to the 51% stake.
Everything except net value scores exactly as it did in the cash sale. But net value is now measured on what the shareholders actually own — their equity net of the outstanding loan — against a bar that climbs year by year under the graduation factor. Here is the ten-year picture.
That sensitivity is a feature of these numbers, not a rule. The valuation, the percentage held, the distribution policy and the timing all move the answer — so model your own before assuming a funded deal will hold. But the more important point for the person on the other side of the table is what they actually receive.
3 — A free employee scheme
The third example removes funding entirely, to isolate a different risk. A business worth R200 million gives 30% to an employee trust for nothing — no loan, no purchase price. A thousand employees participate, all black, 45% women, and none of them has previously held shares in a company worth more than R50 million, so all of them are new entrants. We measure in year one.
Notice what those fifteen points do not turn on. They do not turn on how well the trust deed is drafted. They turn on whether the scheme has suitably qualified and experienced staff in sufficient number, experienced professional advisers, and operating premises — the marks of a scheme that is actually administered rather than one that exists only on paper.
4 — The holding company that halves everything
The last example is the one that catches the most sophisticated deals. A business worth R240 million. A holding company owns 25.1% of it. Black individuals own 51% of that holding company, black women 20%. The holding company still owes about R57.1 million of acquisition debt, of which about R29.1 million is attributable to the black participants’ 51% share — and it is that R29.1 million that is deducted in the net-value calculation. We measure in year four.
The engine here is the 51% rule: where a company is at least 51% black-owned, the black people can count their look-through interest as if they held the whole of what the company holds — but only for votes and economic interest. It is not available for women, new entrants or net value. Watch what that does line by line.
Read the two halves of that example together. Removing R29.1 million of debt lifts net value from 0.53 to 4.10 and the total from 12.54 (plus a discount) to 16.10 — a real improvement. But it can never reach the 8 points the cash sale scored, because on a look-through basis the black participants hold only 12.8% of the operating business, not 51%.
Frequently asked questions
Because a funded deal repays itself out of the very dividends it produces. In the funded example you lend the buyers R51 million at 10%, 90% of dividends go to servicing that loan, and only 10% trickles through in cash. Over ten years they receive about R4.1 million of cash trickle plus roughly R17.6 million of equity at the end — against a headline of “R51 million”. That gap is the arithmetic behind most public criticism of BEE deals, and it is worth explaining to your empowerment partner at the outset rather than at the end. See net value explained.
It is an assumption, not a printed rule. The second net-value formula measures what the black participants actually hold, on a look-through basis, against a target — but the Codes do not print a number in that formula. These examples use 25% because that is the figure verification agencies apply in practice. A different assumption changes the net-value points, so confirm the target your verification agency uses. The net value page unpacks the two formulas in full.
No. A 25.1% stake held through a 51%-black company can never score more than about half the net-value points, however cleverly it is funded. The 51% rule lets the black people count their look-through votes and economic interest as if they held the full 25.1% — but it does not help on women, new entrants or net value. If there is a non-black co-investor in the holding company, removing them is worth more than any funding cleverness.
No. They are illustrations of how the arithmetic works, on assumed facts — not a prediction and not a model of your business. A different valuation, funding rate, distribution policy, transaction date or instrument term will change the score. Model your own numbers with the net value calculator before relying on any of these outcomes.
Why you can trust this: Martin Kotze has been an admitted Attorney of the High Court of South Africa, registered Conveyancer, and Notary Public since 2014, practising from Pretoria. The firm is regulated by the Legal Practice Council under firm registration 17444.
This guide is general information, not legal advice for your specific matter.
Structure black ownership that scores — and stays clear of fronting
Martin Kotze structures B-BBEE ownership deals end-to-end — the share sale or scheme, the funding, the trust or company, and the shareholders’ agreement. General guidance on this page is not a substitute for advice on your facts.