Can a foreigner qualify as BEE shareholding in your business?

Your company is looking at to increase its BEE shareholding and you have identified a potential BEE partner. Despite being very optimistic about the partner, you have in your due diligence discovered that your potential partner - although a black person - was not born in South Africa. This raises the question of whether this partner would qualify as a BEE partner should you continue with the BEE deal?

The answer to this scenario depends on the following two main factors:

1)    Did the person become a South African citizen prior to 27 April 1994?
2)    Did the person become a South African citizen on or after 27 April 1994 but was entitled to become a citizen through naturalization (a process by which a foreigner can be granted citizenship) prior to that date?

According to the B-BBEE Act, a ‘black’ person is a generic term which refers to Africans, Coloureds and Indians (a) who are citizens of the Republic of South Africa by birth or descent; or (b) who became citizens of the Republic of South Africa by naturalisation (i) before 27 April 1994; or (ii) on or after 27 April 1994 and who would have been entitled to acquire citizenship by naturalisation before that date. Additionally, our courts have also determined that Chinese persons will be included in the definition of black people if they are citizens of South Africa by virtue of the above.

The B-BBEE Commission, the watch dog on all things BEE, recently issued a press release warning companies who have foreign nationals as owners from improperly using these owners’ shareholding to claim BEE points or recognition. The B-BBEE Commission used two example cases in their press release.

In the first case a company claimed to be 50% black-owned and 25% black female-owned but the ownership was held by Chinese nationals who were merely resident in South Africa and were therefore not entitled to claim any black ownership. The company in question agreed to and implemented the remedial recommendations issued by the B-BBEE Commission and remedied the matter.

In the second case a company claimed 100% black-ownership based on the shareholding of a person who was only a permanent resident in South Africa and not a citizen, and accordingly also not entitled to recognize the person as ‘black’ or recognize their shareholding as black shareholding.

The above views of the B-BBEE Commission are echoed by BEE verification agencies that have become very vigilant in assessing black shareholding and confirming that the shareholding indeed qualifies as black shareholding as outlined above. It does not mean that foreign shareholding cannot be recognised, but the person must fall within the parameters of what is recognised as being a ‘black’ citizen for purposes of the B-BBEE Act.

It would therefore be prudent to assess any future BEE partner’s qualification as a legitimate BEE partner as contemplated by the B-BBEE Act and if necessary, obtain help or guidance from your attorney or BEE advisor before you enter into any transaction.

Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s).

April 13, 2022
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