Business Ownership and Why Empowerment Transactions are Necessary

04 September 2018 |


The implementation of black economic empowerment transactions in South Africa is becoming increasingly necessary for businesses to survive and the legal issues around these transactions are accordingly of considerable importance to many people.

What follows is a summary of key features of the applicable legislation, the Broad Based Black Economic Empowerment Act 53 of 2003 (the “BBBEE Act”). An overview of the empowerment rating system is provided. This is followed by an analysis of how prescribed empowerment targets relating to (a) ownership and (b) enterprise and supplier development, either compel or influence businesses to enter into empowerment transactions.

In a less detailed manner, the impact of the Preferential Procurement Policy Framework Act 5 of 2000 (“PPPFA”), which provides for a system of rewarding empowerment credentials in the allocation of state tenders, is explained. The importance of empowerment to the allocation of licenses is also considered. With the challenges in context, important functions and powers of the recently established regulatory body responsible for overseeing the implementation of the BBBEE Act, the Broad Based Black Economic Empowerment Commission (the “Commission”), are highlighted.

The crime of fronting is assessed with reference to case law. Important factors which are relevant to whether a relationship might be considered as fronting are identified. An overall picture of the reach and complexities of Empowerment Law is provided to emphasise the importance of carefully considering the details of empowerment transactions.

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