B-BBEE Ownership Element: A Comprehensive Guide

What Does the Ownership Element Measure?

The Ownership element measures the degree to which black people hold shares, exercise voting rights, receive dividends and distributions, and participate in the economic value of the measured entity. The Amended Codes require measurement of both the flow (ongoing economic participation) and the stock (accumulated net value) dimensions of ownership.

Black ownership is only recognised if the shares are held directly by black individuals or through holding structures where black people can be traced as the ultimate beneficial owners using the Modified Flow-Through Principle.

Sub-Elements and Point Allocation

The 25 ownership points are divided into seven sub-elements:

• Exercisable Voting Rights of black shareholders in the measured entity: 4 points (target: 25%+1 vote)
• Economic Interest of black shareholders in the measured entity: 8 points (target: 25%)
• Net Value: 3 points (measured on a sliding scale as debt is repaid)
• Economic Interest of black women in the measured entity: 2 points (target: 10%)
• Economic Interest of black designated groups: 3 points (target: 3%)
• Economic Interest of black participants in Employee Share Ownership Plans or broad-based schemes: 2 points (target: 3%)
• Bonus points for ownership by black new entrants: 3 points (target: 2%)

The Modified Flow-Through Principle

Where a measured entity is owned partly by another company (rather than directly by black individuals), the Modified Flow-Through Principle (MFTP) is applied to determine the effective black ownership. Under MFTP, if a holding company is more than 50% black-owned, 100% of the holding company's shareholding in the measured entity is treated as black-owned. If the holding company is 50% or less black-owned, only the actual proportionate black ownership flows through.

This principle rewards genuinely majority black-owned holding structures by removing the dilution effect of non-black shareholders in the chain, provided the majority is at least 51% black ownership.

Net Value and the Phased Target

Net Value measures the unencumbered value accruing to black shareholders after deducting any debts used to fund the acquisition of the shares. This sub-element recognises that many empowerment transactions are funded through loans, and true economic empowerment only occurs as those loans are repaid.

The Net Value target is measured against a phase-in schedule based on the year the transaction occurred. As the entity matures and loans are repaid, the Net Value points increase. An entity with fully paid-up black shareholding earns all 3 Net Value points.

The Exclusion Principle

The Exclusion Principle allows a measured entity to exclude certain treasury shares, shares held for pure investment purposes with no active management participation, and shares held by foreign nationals. This prevents 'paper' empowerment transactions that do not reflect genuine black economic participation from inflating ownership scores.

Practical Tips for Maximising Ownership Points

To achieve the maximum 25 ownership points, a measured entity needs to ensure at least 25%+1 vote of exercisable voting rights and 25% of economic interest are held by black persons, with at least 10% held by black women. Broad-based ownership schemes, employee share ownership plans (ESOPs), and selling shares to black new entrants (individuals without prior significant ownership interests) can all contribute to bonus points.

Timing matters: transactions completed close to the measurement date may not fully reflect in Net Value calculations. Engaging with an accredited B-BBEE verification agency before major transactions helps ensure they are structured to achieve the intended ownership recognition.

Frequently Asked Questions

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