Over the last 5 or so years there has been a lack of clarity on the acceptability of certain ownership structures from a B-BBEE perspective. These are structures set up as Broad-Based Ownership Schemes (BBOS), Employee Share Ownership Programmes (ESOP), and trusts.   The Government, in the person of the BEE Commissioner, indicated to a number of corporates who had implemented such structures that the resulting Ownership was “Indirect” and not acceptable. The black employees or beneficiaries do not have direct control over the shares, do not have a direct say in the running of the business and do not qualify for ownership. Business, however, believe the structures were set up in accordance with the requirements of the BEE Codes of Good Practice (and had legal opinions to prove this). This led to uncertainty.   Government Gazette 44951 was issued on 18 May 2021 to give clarity in this matter.

1. Summary of Gazette 44591
Discretionary Collective Enterprises
(Including: ESOP & BBOS Trusts)
Published 18 May 2021

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3. Why the clarification?
Over the last 5 or so years there has been a lack of clarity on the acceptability of certain ownership structures from a B-BBEE perspective.
These are structures set up as Broad-Based Ownership Schemes (BBOS), Employee Share Ownership Programmes (ESOP), and trusts.
The Government, in the person of the BEE Commissioner, indicated to a number of corporates who had implemented such structures
that the resulting Ownership was “Indirect” and not acceptable. The black employees or beneficiaries do not have direct control over the
shares, do not have a direct say in the running of the business and do not qualify for ownership. Business, however, believe the
structures were set up in accordance with the requirements of the BEE Codes of Good Practice (and had legal opinions to prove this).
This led to uncertainty.
Government Gazette 44951 was issued on 18 May 2021 to give clarity in this matter.
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4. Important clarifications made in Explanatory Memorandum
“1.4 The Minister of Trade, Industry and Competition (the “Minister”) has taken note of these varying interpretations and
following legal advice hereby issues this Practice Note in order to clarify interpretation of the current provisions. The effect of
the Practice Note will be to clarify that a defined class of black beneficiaries satisfies the ownership provisions under the
Codes, and that specific beneficiaries need not be individually identified, provided that the “Collective Enterprises” comply
with the provisions in this Practice Note. As a consequence, ESOPs or worker ownership schemes which provide a benefit for
a large proportion or all of current and future black workers of the firm, or broad-based schemes which provide a benefit for
certain designated groups like black students as recipients of bursaries, can satisfy the ownership provisions under the Codes.
1.5 The Practice Note further clarifies that evergreen ESOPs, which provide perpetual benefit to workers of the company, also
satisfies the ownership provisions under the Codes...
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5. Important clarifications made in Explanatory Memorandum
(Continued)
1.6 In addition, the Practice Note provides clarification on inter alia the qualification of minors in the ownership calculations and
determination of Collective Enterprises; that distributions can be in cash or kind and that both can be claimed under
Economic Interest on the Ownership scorecard; Allowing for discretion to be applied by the Fiduciaries on the value or portion
of Economic Interest distributions to beneficiaries or participants of Collective Enterprises provided that it is aligned to the
constitution of the scheme; and allowing for Voting Rights to be measured through the Fiduciaries voting on behalf of the
beneficiaries or participants.”
We have bolded the sentence in the above paragraph as it indicates that while we look at the participants or beneficiaries when
determining the Economic Interest, we look at fiduciaries or trustees when scoring Voting Rights. This is not in line with current
practice where we score Economic Interest and Voting Rights through the beneficiaries.
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6. Important clarifications made in Explanatory Memorandum
(Continued)
The following other policy considerations were noted during the process of preparing this document and are not covered by the
Practice Note, such matters will be separately addressed:
• ways to further strengthen broad-based empowerment vehicles like ESOPs, including participation of worker nominees on
company boards and establishing evergreen structures.
• Problems with some existing schemes such as funding, fronting practices, and inadequate flow of information to intended
beneficiaries and governance challenges.
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7. Rules for Discretionary
Collective Enterprises
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8. Rules for discretionary collective enterprises
Note discretionary “in this context and in line with the B-BBEE Codes means that Fiduciaries are able to decide on the
disbursement of the fund without deviating from the founding or constitutional documents.”
The constitution of the scheme must define the participants and the proportion of their claim to receive distributions. However,
the use of a ‘defined class of natural person’ satisfies the requirement for identification. The BEE Codes allow at paragraph 3.1.1
to Statement 100, for Ownership to recognised via Co-Operatives, Trusts, Broad-Based ownership Schemes, and Employee Share
Ownership programmes. This means that black people are entitled to participate in measured entities on an indirect basis,
Annexure 100 (B) to Statement 100 at paragraph 1.14 allows the use a ‘defined class of natural person’ as Participants in Broad
Based Ownership Schemes. The same wording is found in paragraph 2.4.2 to Annexe 100 (C) to Statement 100 dealing with
Employee Share Ownership Programmes and 4.1.2 to Annex 100 (D) to Statement 100 for Trusts. In such schemes the defined
class of natural persons have a vested right against the income and capital of the scheme but the individuals that form part of
that defined class of natural persons do not have a similar vested right.
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9. Rules for discretionary collective enterprises (Continued)
Annexure 100 (B) to Statement 100 at paragraph 1.14 allows the use a ‘defined class of natural person’ as Participants in Broad Based Ownership
Schemes. The same wording is found in paragraph 2.4.2 to Annexe 100 (C) to Statement 100 dealing with Employee Share Ownership
Programmes and 4.1.2 to Annex 100 (D) to Statement 100 for Trusts. In such schemes the defined class of natural persons have a vested right
against the income and capital of the scheme but the individuals that form part of that defined class of natural persons do not have a similar
vested right.
Fiduciary discretions allow the fiduciaries to determine the proportion of entitlement once the beneficiary is selected out of the ‘defined class of
natural person’. However, the fiduciaries may have no discretion in relation to defining the Participants and the proportion of their claim to
receive distributions. In addition, the scheme may not provide for a fiduciaries discretion to distribute less than that fixed percentage to
beneficiaries who are members of the ‘defined class of natural person’.
Where a scheme provides for a formula to determine the proportion of claim, fiduciaries may have no discretion on the terms. When fiduciaries
exercise their discretion, the beneficiary acquires a vested right to such portion distribution. However, note that an individual’s participation in
distributions do not guarantee their future participation.
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10. Rules for discretionary collective enterprises (Continued)
To give an example to clarify the matters discussed above. The beneficiaries of a Bursary programme are defined as Black Female
Students graduating in Gauteng, we can say the following:
• The fixed % portion of the claim is 100%.
• Not all black female matriculants will receive bursaries, only those chosen by the trustees or fiduciaries, i.e. only those selected have
a vested right to receive bursaries.
• The fiduciaries or trustees cannot give bursaries to black males or white people.
• The fiduciaries cannot pay bursaries to any people matriculating out of Gauteng.
• The fiduciaries can vary the amounts paid to different qualifying matriculants.
• Receiving a bursary this year does not give the recipient the right or expectation to receive a bursary next year.
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11. Rules for discretionary collective enterprises (Continued)
Only Black People Participants attract recognition on the ownership scorecard, the Codes place no other restrictions on the
nature of Participants. In addition, minors can be treated as participants or beneficiaries.
Scheme distributions may be in cash or kind. For example, schemes may pay for skills development, education, or training. Note
these distributions, made in cash or kind, have no impact on the scoring for Economic Interest claims.
In companies’ dividend distributions are dependent upon factors such as the company’s solvency and liquidity. Such decisions
have no impact on the recognition of Economic Interest in the company. Similarly, a discretionary Collective Enterprise cannot be
penalised for not having made a distribution to beneficiaries during the Measurement period. Such retained earnings will vest in
the defined class of people as discussed above.
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12. Rules for discretionary collective enterprises (Continued)
Collective enterprise financial reports are to be presented annually at an Annual General Meeting or AGM. This does not
translate to a requirement that all beneficiaries must attend the AGM for the scheme to be recognised.
ESOPs which provide perpetual benefit to workers of a company satisfy the ownership provisions of the Codes. These workers
can be beneficiaries provided they maintain employment at the Measured Entity.
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13. Measurement and
Evidentiary Requirements
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14. Measurement and Evidentiary Requirements
The constitution terms, Memorandum of Incorporation (MOI) or trust deed of a collective enterprise must clearly define the
objective of the scheme and may provide for a fiduciary to have discretion to distribute. These requirements are laid out in detail
in Annex 100 (B) to Annex 100 (D) to Statement 100 of the BEE Codes.
A fiduciary discretion must be exercised within the confines of the defined class of natural persons. In addition, where this
discretion exists, the race and gender composition must be determined with reference to constitution, MOI or trust deed and any
applicable law.
Participants in these schemes seldom have the right to vote at general meetings. However, the voting rights of such participants
will be attributed to the race and gender of the participants and not the fiduciaries. This means the apparent difference in
determination of Voting Rights as highlighted in the Explanatory Memorandum is not correct. We look to the beneficiaries when
determining the Economic Interest and Voting Rights.
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15. Reporting Requirements
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16. Reporting Requirements
The ‘defined class of natural person’ does not distinguish between classifications such as their ‘number’, their ‘province’ or ‘age’
etc. This may cause schemes to be unable to report on ‘black people’ participants in terms of required classifications.
A Measured Entity which is unable to produce verified information cannot be compelled to do so, and therefore cannot be
considered non-compliant. Unverified information cannot be included in the Ownership scorecard so how can companies be
required to report on it.
The Practice Note confirms business’ interpretation and application of the BEE codes for BBOS, ESOP and Trusts. The BEE
Commissioner has also indicated to several listed entities that if they cannot report on name, race, gender, disability status and
province of residence of Shareholders, they will be deemed non-compliant when doing their annual reporting. This Practice Note
indicates that this treatment by the BEE Commissioner is not correct.
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