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B-BBEE trusts and the basic requirements for participants

The B-BBEE Codes of Good Practice measure performance against five inclusion indicators with ownership and industrialisation taking centre-stage in most forums.

B-BBEE trusts and the basic requirements for participants

These requirements are used to prioritise economic growth through minimum levels of local participation.  The ownership element, specifically when a trust is used, has remained highly contested as trusts are often used to circumvent the objectives of B-BBEE.

  • What are the objectives of B-BBEE?

Briefly, the objective is to increase the effective participation of black people in the South African economy.  In this regard, trusts can provide financial benefits to more black people than individual ownership structures and can especially benefit poor and unskilled black people who would not otherwise have an opportunity to participate in shareholding or acquire other interests in a company.

During 2017, Trade and Industry Minister Rob Davies said an analysis had shown that more than 50% of registered trusts are not compliant with B-BBEE requirements.  Davies indicated that most of these B-BBEE trusts do not satisfy the basic requirements because black participants are treated merely as beneficiaries and not shareholders.

  • What are the basic criteria for B-BBEE trusts when it comes to participants?  

The trust deed must define the participants of the trust and the proportion of their entitlement to receive distributions. It is important that the trustees administering the trust should have no discretion to change this.  A written record of the names of the participants or the use of a defined class of natural persons satisfies the requirement for identification.  A written record of fixed percentages of entitlement or the use of a formula to calculate entitlement satisfies the need for defining proportion of benefit.  Trustees are also obliged to submit an annual financial report to participants at an annual general meeting.  On winding up or termination of the trust, all accumulated economic interest must accrue to the participants or to an entity with similar objectives.

In practice, this means that the trust must be seen as an independent shareholder.  The trust deed must be implemented as a “living document” and trustees need to hold trustee meetings, attend board and shareholder meetings and report to participants.

SERR Synergy assists businesses with a variety of ownership structures to facilitate black participation. We also have unique training courses to develop beneficiaries to participate meaningfully in the affairs of the trust or other form of ownership structure.

About the author: Liezl Krynauw holds an LLB from the University of Pretoria and completed her articles with Webber Wentzel attorneys. She started working at SERR Synergy in 2018 where she currently serves as Trust Advisor setting up trusts and other collective ownership structures.