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The BEE contribution level of unincorporated joint ventures

The Minister of Trade and Industry approved amendments to the generic Broad Based Black Economic Empowerment Codes (herein the ”BBBEE Codes”) which were gazetted on the 31st of May 2019 and came into operation and effect on the 1st of December 2019.

The amended BBBEE Codes now provides for clarity and guidance on the method for measuring the contribution level of an unincorporated joint venture (herein the ”JV”). In essence the amended BBBEE Codes require unincorporated JV’s to provide a compilation of a consolidated verification certificate, using the compliance data of the JV’s partners in proportion to their shares in the JV (i.e. as if the partners of the JV were a single measured entity).

The consolidation of compliance data shall be based on a weighting in accordance with the partners’ share, stipulated in the joint venture agreement. For example, in the event of two companies entering into an unincorporated JV, each of the two companies’ respective scores in terms of the BBBEE Codes will be weighted according to their proportionate share in the JV and added together for a combined score out of 100 (one hundred).

According to the amended BBBEE Codes a 51% black owned EME or QSE will qualify for a score of 95 points while a 100% black owned EME or QSE will qualify for a score of 100 points. A certificate issued to an unincorporated JV will be valid for 12 (twelve) months and only applicable to a specific project of the JV.

With respect to the ownership element, and notwithstanding the BBBEE level attributed to the unincorporated JV, the black ownership of the respective partners may be flowed through to the JV in proportion to the respective JV partners’ economic interest and voting rights in the JV as determined by the JV agreement.

It is therefore important to take into consideration the amended BBBEE Codes applicable to unincorporated JV’s, when drafting the JV agreement. Especially in respect of the profit-sharing arrangements. Should profit-sharing arrangements not be clearly defined, it may become an unendurable task of consolidating compliance data for verification purposes.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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