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The codes are clear in all sectors achieve at least 40% of the ownership points which equates to a 10% ownership in the hands of Black South Africans, or you drop a rating level.

If you do not have ownership, you can resign yourself to the fact that you will achieve at best a level 6 rating level, which is not good enough in today’s times.

There are solutions that we have been able to work out that have passed the BEE commissioners scrutiny over the years and is accepted by all SANAS verification agencies that does not cost you an arm and a leg.

So, what can you do?

The large percentage of companies are implementing trusts where the companies share percentage lies in the trust rather than in the hands of people which is easier to administrate for the business owner than having an office-based share holder and an increased headcount.

What is a Trust?

A Trust generally refers to an arrangement in terms of which a person, often the Founder or Trustee, holds property or asset for the benefit of another, commonly known as a beneficiary, and can be for charity or estate planning, among other reasons. Under the B-BBEE Act, a Trust can be used to facilitate ownership by employees, communities, key person trust or educational trusts or other similar collective groups like NPO’S or

Requirements for recognition of Trusts in ownership transactions

For the purposes of achieving B-BBEE objectives, black people may hold their rights of ownership in a measured entity through some form of a vehicle such as a Trust. To ensure that black people effectively own, control and manage the ownership rights held through the Trust and to prevent avenues for circumvention of the B-BBEE Act by measured entities, the Codes of Good Practice provide rules for the Trusts. These rules apply to Trusts as well as to transactions that involve Broad-Based Ownership Schemes and Employee Share Ownership Programmes that are structured in a form of a Trust.

While Trusts can be used to facilitate ownership, the transaction in question must still meet the requirements for recognition of ownership, which comprises of exercisable voting rights, economic interests and net value in the hands of black people as a result of direct or indirect participation in the measured entity. The measured entity may on an annual basis recognise points for as long as the black shareholders still hold rights of ownership in the entity.

There are specific rules governing Broad Based Trusts, Employee Share Ownership Trusts, Key person trusts, Family trusts etc and this is where the devil lies in the detail. Before jumping wildly into the trust world, you need the correct information to make an informed decision. If implemented correctly, Trusts have a potential of advancing transformation of the economy.

Another often confusing issue is the appointment of trustees.

Under South African trust law all trustees have personal fiduciary duties and are accountable to beneficiaries.

If the trustees breach these duties, they can incur personal liability. The involvement of the company in the affairs of the trust can cause concerns about the independence of the trusts and trustees and it is important that the relationship between the company and the trust is arm’s length. The Codes deal with these concerns by requiring employees to elect 50% of the trustees.

For broad based trusts, the Codes require at least 50% of the trustees to be independent and the chairperson of the trustees must be independent. The Codes also require the trusts to have either a track record or “operational capacity” including staff, premises, and advisors.

From a practical perspective, the trust deed must be implemented as a “living document” and trustees need to hold trustee meetings, attend board and shareholder meetings and report to participants.

We have a solution for your company regarding ownership without increasing your headcount, payroll, or structure.

Article By:

Hilton Johnson: CEO - Compliance Hub

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