Financial Data
Updated 23 Mar 2017


Why EMEs and GSEs automatically qualify for level 1 and 2 recognition

In part one of this series of articles, learn how your business might already qualify for BBBEE level 1 and 2. 


Nicolene Schoeman-Louw , 16 March 2017  Share  0 comments  Print


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In October 2013, the revised Broad-Based Black Economic Empowerment (BEE Codes of Good Practice) Codes were gazetted by the Minister of Trade and Industry (DTI). These (new) BEE Codes of Good Practice came into operation on 30 April 2015 (“new codes”), thereby replacing the existing BEE Codes of Good Practice (“old codes”).

Businesses are categorised into three levels for this purpose namely; Exempt Micro Enterprises (“EME”), Qualifying Small Enterprises (“QSE”) and Generic enterprises (GSE).

Under the previous codes, QSE’s could elect four out of the then seven elements to be scored on, but they are now required to be compliant with all 5 scorecard elements. The elements include:

  • Ownership
  • Skills development
  • Enterprise and Supplier Development
  • Socio Economic Development
  • Management Control.

Priority items under the new codes are:

  • Ownership
  • Skills development
  • Enterprise and Supplier Development

Ownership is a compulsory compliance element.

Related: 3 Law-related facts that every entrepreneur must know

Automatic level 1 or 2 recognition

Traditionally, EME’s have not been subjected to a verification and automatically rated as a level 4 BBBEE contributor. If the enterprise is 51% black owned, it is automatically a level 2 contributor and if 100% black owned, an automatic level 1.

This is regardless of industry. Moreover, in terms of the new codes, a certificate of an auditor is no longer mandatory, only a sworn affidavit by a duly authorised person confirming annual revenue of R10 million or less and level of black ownership.

Any misrepresentation in this affidavit constitutes a criminal offence under the Broad Based Black Economic Empowerment Act No. 53 of 2003 (“BBBEE Act”).

The rationale behind this has always been fairly simple – to limit compliance costs for small businesses.

In terms of the new codes this has been extended to QSE’s. QSE’s with 51% black ownership also enjoy an automatic level 2 recognition and 100% black owned a level 1, also, both regardless of industry or sector.

A QSE in this case is also only required to do a sworn affidavit confirming annual revenue of R50 million or less and level of black ownership.

A few business experts are of the opinion that this is indicative of the regulator reverting back to a narrow-based empowerment approach. Others are of the opinion that this constitutes an oversight and will be addressed in future amendments not too far from now. Whatever the reason, for now this offers a valuable opportunity for all compliant businesses, or for businesses to become compliant.

Related: What the Companies Act means to you

Many smaller businesses are implementing employee share scheme structures in order to comply with the ownership component. Others are opting for direct ownership. Regardless of the ownership structure opted for, if the business is an EME or QSE, this means that they automatically qualify for one of the recognition levels set out above.

This should however not be where the compliance and planning ends. We will unpack the way forward and associated risks in part 2 of this article.

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About the author


Nicolene Schoeman-Louw

Nicolene Schoeman – Louw is an admitted attorney of the High Court of South Africa, as well as being a Conveyancer, Notary Public and Mediator. She is the Managing Director of Schoemanlaw Inc Attorneys, Conveyancers and Notaries Public (Schoemanlaw Inc Attorneys) in Cape Town. Visit www.schoemanlaw.co.za for more information or email enquiries@schoemanlaw.co.za

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