There have recently been many questions raised regarding the correct application and principles of the utilization of trusts within BEE transactions.
In terms of Section 9 of the B-BBEE Act 53 of 2003, it states in STATEMENT 100 which deals with ownership that:
“An entity receives points for the participation by black people in its rights of ownership.”
“Black people may hold their rights of ownership in a measured entity as direct participants or as participants through some form of entity such as a: company, a TRUST, a B-BOS, ESOP”.
It is therefore clear from the act that trusts within an ownership structure are permissible. Trust structures often have legal and tax complexities, and it is to this end that services of professionals be utilized in the drafting of various documents.
It is a real travesty that so many of these empowerment transactions, where trusts have been utilized, are failing dismally, despite having started out in the true spirit of “Ubuntu”!
This has led to dire consequences for many companies, including but not limited to fines of 10% of annual turnover and the individuals involved have been fined or imprisoned for up to 10 years.
WHY are so many of them failing? NON-COMPLIANCE
How to make sure your trust’s compliance tick’s the boxes at verification time!
Is the original letter of authority in the hands of the trustees?
Has the initial donation been made as provided for in the trust deed?
Do the trustees understand the TPCA (Trust Property Control Act) and its relevant principles and are they familiar with the contents of the trust deed and obligations of the specific trust?
Are the trustees complying with their fiduciary obligations? They are accountable to the beneficiaries, failing which they are in breach, and could incur personal liability.
Is the relationship that exists between the company and trust at arms-length?
How are funding issues dealt with if the trust receives no OR insufficient dividends from the company? As this could possibly result in disgruntled beneficiaries.
In terms of the Companies Act a company is prohibited from declaring dividends if it fails the solvency and liquidity test.
(This list is not exhaustive, and neither may it be construed as legal advice)
The failure of trustees to comply with the trust deed may be your downfall at verification, when ownership points cannot be claimed………
Article by Tiffany Reed – HR and EE Consultant, Compliance Hub