Ownership has always been one of the most contentious elements within a B-BBEE transaction. Many companies have however recently opted to set up various different trust structures. If these are strategically thought out and have both the input of legal and tax expert’s they have the potential to be extremely valuable, in leading transformation within a business.
Often there is a perception that the trust is just passive and is just dictated to by the company. It is however within the codes extremely clear that the relationship that exists between the company and a trust needs to be at arms- length, failing which the transaction is deemed to be fronting.
The failure of a trustees to comply with the trust deed may just be downfall at verification, when the ownership points cannot be claimed………
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’re 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)
It must however be noted that if trusts aren’t COMPLIANT with the trust deed, B-BBEE points cannot be claimed.
Only a compliant trust is sustainable!