The Treatment of Non-Profit Companies in the B-BBEE Verification Process

Understanding the Role of Non-Profit Companies in B-BBEE Measurement

Non-Profit Companies (NPCs) play a unique role in the Broad-Based Black Economic Empowerment (B-BBEE) framework. Due to their legal structure, they do not have shareholding and, consequently, cannot be evaluated for black ownership under Code Series 100 of the B-BBEE Codes of Good Practice. However, NPCs can still contribute to the measurement and recognition of black ownership in a chain of ownership, provided certain conditions are met.

This article explores:

1. Whether an NPC can qualify for B-BBEE ownership recognition.

2. Whether an NPC can contribute to ownership measurement in a shareholding structure.

3. The appropriate method for verifying an NPC’s B-BBEE Status Level.

Can an NPC Qualify for Black Ownership Recognition?

According to Paragraphs 2.4 and 2.5 of Code Series 005, NPCs lack beneficial ownership and cannot be assessed for black ownership under Code Series 100. Their corporate structure prevents them from holding ownership in a way that can be measured for B-BBEE purposes.

However, an NPC may indirectly contribute to the black ownership of enterprises where it holds shares. This is explicitly permitted under Statement 100, which allows companies to either exclude NPC ownership, recognize it as non-black, or obtain an independent assessment of black ownership rights stemming from the NPC.

NPCs Contributing to the Measurement of Black Ownership

When an NPC holds shares in a Measured Entity, the entity can elect to treat the ownership in one of the following ways:

1. Exclude the NPC’s shareholding as per Paragraph 3.11.1, Statement 100.

2. Recognize the shareholding as non-black ownership under Paragraph 3.11.4, Statement 100.

3. Obtain a competent person’s report estimating the black rights of ownership originating from the NPC, as per Paragraph 3.11.4, Statement 100.

In effect, the NPC can contribute to black ownership in the verification process when the appropriate assessment is conducted, ensuring that its role in ownership is correctly measured.

Competent Proof of B-BBEE Status Level for an NPC

For verification purposes, an NPC classified as an Exempted Micro Enterprise (EME) falls under Code Series 000, Statement 004, which provides the following default recognition levels:

• Level 4 Contributor (B-BBEE Recognition Level of 100%) for standard EMEs.
• Level 1 Contributor (135% recognition level) for EMEs with at least 75% black beneficiaries.
• Level 2 Contributor (125% recognition level) for EMEs with at least 51% black beneficiaries.

An NPC must provide a sworn affidavit annually confirming:

1. Its Annual Total Revenue/Allocated Budget/Gross Receipts (R10 million or less).

2. Its percentage of black beneficiaries.

For instance, an NPC with 100% black beneficiaries qualifies as a Level 1 Contributor based on its sworn affidavit.

Applying NPC Ownership Contributions in a Measured Entity

While an NPC’s sworn affidavit verifies its B-BBEE Status Level, it cannot be used to determine black ownership in a Measured Entity. Instead, when a Measured Entity seeks to recognize black ownership originating from an NPC, it must obtain a competent person’s report that estimates the extent of black rights measurable in the entity.

This distinction ensures that NPCs retain their unique status within the B-BBEE framework while still allowing them to contribute to black ownership measurement where applicable.

Conclusion

While Non-Profit Companies cannot qualify for direct black ownership measurement, they can contribute to ownership recognition in a chain of ownership, provided the necessary assessments and independent reports are conducted. NPCs classified as EMEs can achieve enhanced B-BBEE recognition levels based on their percentage of black beneficiaries, verified through sworn affidavits.

By understanding these provisions, NPCs and Measured Entities can align their verification approach with B-BBEE regulations, ensuring compliance and maximizing empowerment objectives.