When it comes to Broad-based Black Economic Empowerment (B-BBEE) compliance, a business requires certain resources in order to comply at different levels. Naturally, enterprises of different sizes will have different resources available to dedicate to their compliance. This article is a practical guide to enterprise types and B-BBEE legislation.
The resources of South African enterprises differ substantially, thereby making it impossible to expect the same level of compliance from small enterprises as expected from large enterprises, especially in matters relating to Broad-Based Black Economic Empowerment. The same could be said for enterprises in different sectors.
To accommodate these differences the legislator divided enterprises into different categories based on their turnover and in certain instances according to the sector in which they compete.
Enterprises are divided into three financial categories according to their annual turnover:
|*||Exempt Micro Enterprises||(EMEs)||Turnover of R10m or less|
|*||Qualifying Small Enterprises||(QSEs)||Turnover between R10m and R50m|
|*||Medium to Large Enterprises||(M&Ls)||Turnover more than R50m|
Now that we have seen how enterprises are broadly categorised based on income, we can discuss the practical implications for each category’s compliance.
Exempt Micro Enterprises (EMEs)
All Exempt Micro Enterprises (EMEs) are automatically considered to be a Level 4 BBBEE status. They only need to produce an affidavit as proof of their compliance.
The status of an EME may be enhanced to Level 2 status where 51% of the Ownership is in black possession and to Level 1 status where 100 % Ownership is in black possession.
The modified flow-through principle may not be applied in determining ownership within this category. (Read more about the Modified Flow Through Principle here)
Qualifying Small Enterprises (QSEs)
Qualifing Small Enterprises (QSEs) that have 51% Black Ownership is automatically classified as Level 2 contributors while QSEs with 100% Black Ownership is considered to be Level 1 contributors.
All other QSEs are required to comply with either the Generic Scorecard or Industry-specific Scorecards and must prove compliance with all five categories of the relevant scorecard, being Ownership, Management Control, Skills Development, Enterprise and Supplier Development, and Socio-Economic Development.
Medium and Large Enterprises (M&Ls)
Medium and Large Enterprises (M&Ls) are subjected to all categories of either the Generic Scorecard or Industry-specific Scorecards and face the most stringent requirements of all enterprises – logically so, because they are certainly the most influential enterprises in the market and possess the required resources to attain these requirements.
Now that we have seen the simple classification of enterprises and the implications for their B-BBEE compliance, it becomes very easy to understand why varying enterprises have such vastly and often complex compliance requirements. Smaller businesses benefit from this in that the legislation makes provision for smaller resource availability.