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Compliance: How to comply with the new BEE codes - Part 3

BEE codes

In my last article on the new BEE codes and how you need to show compliance with these, I chatted about five of the most significant changes these amendments have ushered in, namely: that the regulations for exempted microenterprises (EMEs) and qualifying small enterprises (QSEs) have changed as have the nature of the BEE pillars, the need to become a 'value-adding' supplier and the number of qualifying points for each level. Here are the last four significant changes that Richard Pruett of Format Systems highlighted at a recent breakfast at CRS Technologies.

1. Will the new ownership thresholds prompt fronting?

The ownership threshold is 40% of net value, which is equivalent to 10% of your company being in the hands of black people, said Richard.

A delegate asked if this new requirement wouldn't prompt fronting, i.e. company owners taking on black people to earn BEE points. Richard was very cagey, not really answering this question, by responding: "You have fronting, and fronting is a problem." He then went on to talk about the 'regular BEE financiers' who 'swallow' all the BEE deals, not leaving anything for those genuine BEE-accredited suppliers and this defeating the real purpose of BEE, i.e. spreading the wealth. Reading between the lines, I would say that the new thresholds could most definitely prompt fronting.

2. Ten percent of shares in your company must be unencumbered

When people buy into your company, they have 10 years to pay the full amount for those shares. According to the new BEE codes, 10% of shares in your company must be owned free and clear, e.g. the owners of those shares must have already have paid back the loans they took out to pay for these shares.

3. Are directors' salaries included in the definition of your wage bill?

Yes, says Richard, if the directors are company employees too.

4. The 'preferential procurement' category has now been split up

To get 12 points, half of your spend with suppliers must be with providers who are BEE compliant. You'll get three extra points when you spend with QSEs and EMEs, and you'll get five points at companies who are owned, in some degree, by black individuals.

Included here is enterprise development, according to which you need to make contributions equivalent to 3% of your net profit to get the necessary points. There are lots of ways to get these points, e.g.:

  • If you pay your EMEs and QSEs service providers cash on delivery, this is regarded as an interest-free, unsecured 30-day loan of 30 days. You will get BEE points for this.