top of page





Amended General B-BBEE Codes of Good Practice




In issue 23 of TFM Magazine, we unpacked definitions linked

to the Ownership Scorecard published as Gazette #36928, an

amendment to the Generic Codes of Good Practice (Codes). In

this overview, emphasis was on potential valuation methodologies

available. The chosen methodology used to value an organisation

is critical to the Net Value component, which awards the most

points on the Ownership Scorecard, not forgetting the Discounting

Principle for not meeting the 40% sub-minimum requirement.

In this issue, we delve into the Ownership Scorecard, focusing on

the Exclusion Principle and its effect during a B-BBEE Verification.

To fully articulate this principle, one must firstly recognise the

difference between a ‘Form’ of Ownership versus a ‘Principle’

of Ownership when applying the Exclusion Principle during a

B-BBEE Verification.

The ability to recognise what differentiates a ‘Form’ vs a

‘Principle’ of Ownership lies in the definitions held in Schedule 1,

published as Gazette # 42496 in 2019. It is the point of reference

for interpretations and definitions within the Codes. Interpretation

of the Codes must be according to the following three provisions

unless the context requires a different meaning:

1 In interpreting the provisions of the Codes, any reasonable

interpretation consistent with the objectives of the B-BBEE

Act (Act) and an organisation’s B-BBEE Strategy must

take precedence.

2 Words importing persons shall, where the context requires

or admits, include individuals, firms, partnerships, trusts,

corporations, governmental bodies, authorities, agencies,

unincorporated bodies of persons or associations and any

organisation having legal capacity.

3 The Schedules and Annexes are a point of reference to

the Codes The definitions featuring in Schedule 1 apply to the Exclusion

Principle, which is an allowance in the Ownership Scorecard: “Equity


means the instrument by which a Participant

holds Rights of Ownership in an Entity.


Voting Right”

means a voting right of a Participant that is

not subject to any limit.



means any investments made by or through

any third party regulated by legislation on

behalf of the actual owner of the funds,

pursuant to a mandate given by the owner to

a third party, which mandate is governed by

that legislation. Some examples of domestic

mandated investments and the portions of

those investments subject to the exclusion

principle are contained in Annexe 100A

attached to statement 100.



Interest Date”

means the later occurring of the date of

commencement of statement 100 and the

date upon which the transaction undertaken

by the Measured Entity in order to achieve

‘Black’ rights of ownership became effective

and unconditional.

“Participant” means a natural person holding rights of

ownership in a Measured Entity.


Equity Fund”

means a third-party fund through which

investments are made on behalf of the actual

owner of the funds pursuant to a mandate

given by that person to the private equity




means a sale of a business, valuable business

assets or shares, that result in the creation

of sustainable business opportunities and

transfer of specialised skills or productive

capacity to ‘Black’ people.

All the definitions mentioned above filter through to "Rights of

Ownership", which is the differentiating factor between a 'Form'

and a 'Principle' according to the Ownership scorecard.

“Rights of


is a collective term for the right to Economic

Interest and the right to Exercisable Voting

Rights A ‘Form’ of Ownership links to Economic Interest and the effective

Voting Rights applicable to a physical share. In short, it is about

the control of an organisation. The Codes allow other avenues

to achieve an organisation’s objectives and targets. However, all

Forms of Ownership incorporate equity, which means discarding

the Voting Right and the Economic Interest associated with such

disposal. Forms of Ownership may include but are not limited to:

> Direct and Indirect Equity Share Transactions between

individuals and entities;

> Implementation of Trusts which house a type of scheme,

namely an Employee Ownership Scheme or a Broad-Based

Ownership Scheme;

> Trading and Family Trusts;

> The Sale of an Asset - further information appears on page 32;

> Private Equity;

> Equity Equivalents;

> Mandated Investments;

> Section 21 Companies or Companies Limited by Guarantee; and

> Options and Share Warrants.

A ‘Principle’ of Ownership is a concept that facilitates or promotes a

‘Form’ of ownership. The theory is the Principle links to commercial

regulation complexities and how such commercial requirements

impact a ‘Form’ of ownership. For example, Mandated Investments

add to the complexity due to the mandates, owners and controlling

parties associated with such investments. Consequently, determining

the effective ‘Black’ Ownership percentage of an organisation with

shareholding through this equity instrument is extremely difficult to

calculate, due to the restrictions imposed on a Mandated Investment

by Private Equity Fund Managers. Again, in terms of Private Equity

Fund Managers and their commercial rights, determining the effective

‘Black’ Ownership is difficult or may not even be possible in terms of

the B-BBEE legislative requirements. Hence, the B-BBEE framework

made a provision to incorporate such complexities that would align

with the objectives of the Act.

Introducing the Exclusion Principle: It is not associated with the

physical disposal of a share, its Voting Right and Economic Interest,

but rather a concept of recalculating an organisation’s total ‘Black’

shareholding. The Codes allow an organisation to exclude portions

of shareholding. However, applying the Exclusion Principle may

impact the remaining forms of Ownership.

The Exclusion Principle automatically applies to organs of state

and Public Entities, whereby these exclusions take preference

over other avenues of Ownership. A Mandated Investment, for

example, may not exceed 40% of the total exclusions derived in the

Ownership score.

Before applying the Exclusion Principle, organisations must

consider their fundamental requirements and the objectives. To

determine the validity of a Mandated Investment and its subsequent

inclusion or exclusion from the Ownership calculation, a B-BBEE

Rating Agency must obtain recognition in a report form, compiled

by a Competent Person. A B-BBEE Rating Agency will: > Confirm all Mandated Investments held by an organisation;

> Inspect the share register for all Mandated Investments

held by Collective Investment Schemes; for example,

Pension Funds and Unit Trusts to name a few;

> Recalculate the Ownership taking the exclusion of

Mandated Investments into account to ensure that it does

not exceed 40%.

Applying the Exclusion Principle to Mandated Investments

does not allow the application of the Modified Flow-Through

Principle (MFTP). Applying the Exclusion Principle will impact

the remainder of the Ownership Scorecard. The reason is

that the Deemed Net Value calculation makes provision for a

denominator which measures:

> The value of an organisation’s measurable ‘portion’ on the

date of an organisation’s B-BBEE Verification in contrast

to the ‘value’. The result of the Deemed Value, taking the

‘portion’ and ‘value’ into account, has a direct impact

on the Net Value calculation and the subsequent points

awarded on the Ownership Scorecard. The following

illustrates the calculation of the Exclusion Principle during a

B-BBEE Verification. Formula A: Net Value Calculation

B is the Deemed Value for all ‘Black’ Participants in

the Measured Entity determined using the Deemed

Value Formula

C is the Time-Based Graduation Factor of the

Economic Interest compliance, the target of which is:

> 10% for the first year after the current equity

interest date.

> 20% for the second year after the current

equity interest date.

> 40% from the first day of the third year after the

current equity interest date to the last day of the

fourth year after the current equity interest date.

> 60% from the first day of the fifth year after the

current equity interest date to the last day of the

sixth year after the current equity interest date.

> 80% from the first day of the seventh year after the

current equity interest date to the last day of the

eighth year after the current equity interest date.

> 100% from the first day of the ninth year after the

current equity interest date to the last day of the

tenth year after the current equity interest data. Formula B: Equity Instruments Calculation


Flow-Through Principle Example

B is the percentage Economic Interest in the

Measured Entity of ‘Black’ Participants

C is the target for the Ownership indicator in paragraph

2.3.1 of the Ownership scorecard Another common principle that relates to the Ownership

Scorecard is the MFTP that applies to B-BBEE owned

or controlled companies. Essentially, it seeks to promote

transformation whilst allowing the participation of non-’Black’

Participants at the first tier of ownership. The Codes unpack the

principle, as:

> Where in the chain of Ownership ‘Black’ People have a

flow-through level of participation of at least 51%, only then,

once in the entire ownership structure of an organisation,

may such ‘Black’ participation be treated as if it were 100%


In the following illustration, ABC Traders has 51% ‘Black’

Ownership when applying the Flow-Through Principle (FTP).

Using the same illustration but applying the MFTP, it deems

an organisation to have 100% ‘Black’ Ownership. Therefore,

applying the MFTP, the effective ‘Black’ shareholding is 26%, in

contrast to 13,36% when applying FTP. What this means for the

Measured Entity is that they would more than likely achieve total

points for indicators 2.1.1 and 2.2.1 on the Ownership scorecard. Applying a single principle allowed on the Ownership calculation

acts as a reward for transforming, thus showing an organisation’s

willingness to transform. The application of the Exclusion

Principle generally occurs in Complex Ownership Structures.

However, once another principle like the MFTP is applied,

the option of the Exclusion Principle falls away. The rationale

behind the principle is employed to promote a specific Form

of Ownership. An organisation may not benefit from multiple

principles allowed in the Ownership Scorecard, as doing that

would result in misrepresentation of its ownership status.

Therefore, an organisation can have various Ownership vehicles;

however, it may only apply one principle. Put another way,

applying a principle effectively inflates an organisation’s ownership

score, in line with the expectations of the Codes.

In conclusion, the Ownership Scorecard is multi-faceted and

complex. As the consequences for not accurately forecasting the

outcome are so high, organisations must ensure that both the

legal and B-BBEE boxes are ticked by those wholly versed in the

B-BBEE space. Levanya Reddy is a Director at MSCT BEE

Services, a SANAS accredited B-BBEE

Rating Agency. She has an in-depth

understanding of the Codes; with her

experienced team, MSCT conducts B-BBEE

Verifications according to the standards

outlined in the R47-03 document. Following

an honours degree and subsequent career in

Biotechnology, her shift to the B-BBEE space

was borne from new opportunities and a

desire to put herself at the forefront of a

transforming South Africa. As B-BBEE is the

catalyst for change, the move was a good fit.

01-Ownership Choose Your Principles Wisely
Download PDF • 2.83MB

bottom of page