[Question] Black Ownership

[Duncan]

Hi all, i am faced with a dilemma in that to grow my business to the next level i need to have black ownership. Currently we are level 4 EME but we are being forced to have have black ownership by many large non government companies.

I dont have a problem with that if we can have that person adding value to the business and then this brings along the growth that helps take us to the next level. The problem i have is i dont have anyone within the organisation who i could even ear mark for that position. Someone outside exposes us to a huge risk. I am not rubbing shoulders with anyone who might be able to come on board who i can trust and fills a requirement.
So i thought of a new employee of colour in a middle management position who we can give a share holding to, which he will have to work off the debt of that share holding and at the same time he can grow to become decision maker in the business over time.

My question is would that be legal and solve my ownership problem and if so how would be best to structure that deal in either a CC or we convert to a (Pty) Ltd.

Thanks

[Greig Whitton]

My question is would that be legal and solve my ownership problem

There's nothing illegal about selling an equity share to a manager and structuring the sale as a loan agreement that the new partner settles over time. However, it is only going to solve your "ownership problem" if the equity share is fairly substantial. To earn maximum ownership points on the new B-BBEE scorecard (which becomes mandatory from May), you would need at least 25% black ownership (EMEs can automatically qualify for level 2 B-BBEE status, but then the black ownership portion would need to be at least 51%). Selling a quarter (or more) of your business to a middle manager is fraught with risk, and bear in mind that employee share programs are subject to multiple criteria.

If a black partner is absolutely non-negotiable, you could also consider a joint equity exchange: approach a black-owned business client / supplier / industry partner / etc. and offer them a stake in your business in exchange for a stake in theirs. Obviously it's not without risks and complications, but at least you know that you are getting something immediate and substantial in exchange while broadening your investment portfolio.

[wynn]

The option I would explore is to create a BBBEE trust of which you are the trustee and in which every black member of staff is a beneficiary as long as they are on the staff, the minute they resign or are fired they fall out of the trust.
The trust will hold the necessary shares in the business and share of the dividends earned by the trust is according to pre arranged beneficiary points (length of service, position in the company etc.)

That way you still get to call the shots and you wont be stuck with a partner you may not want.

[Duncan]

Hi all, just to say thanks for your help and advice in this regards. Finally settle on the BBEEE trust and its in the process of being drawn up and finalised.