Dividing your business for BEE purposes

“I have heard that in terms of the new BEE Codes an entity with a turnover of under R10 million will qualify for an automatic level 4 BEE certificate and does not have to undergo verification. My company currently has two divisions with a combined turnover of around R12 million. Can I split my company into two separate businesses with each part having a turnover of less than R10 million?”

Any splitting of your business purely for BEE purposes may constitute an offence in terms of the New BEE Codes. The drafters foresaw that a business may be enticed to split into smaller units in order to circumvent their BEE responsibilities and accordingly criminalized any such conduct. This does not mean that you can never divide or reorganise your business. It just means that if you cannot show a good commercial reason for having done so or cannot explain your timing, then you run the risk of being guilty of an offence under the BEE Act. Verification agencies will also be on the lookout for businesses that have changed their structures and will be asking hard questions of the owners, which, if not properly answered, may lead to charges being brought in terms of the BEE Act.

The BEE Act states that any person found guilty of an offence in terms of the Act may be liable for a fine or imprisonment for a period not exceeding 10 years, or both a fine and imprisonment. The amount of any fine will be determined by looking at the value of any transactions which were the result or the intended result of the commission of the offence. Any person found guilty of an offence in terms of the BEE Act will also be prohibited from doing business with any organs of state for a period of 10 years from the date of conviction.

So, although splitting your business may appear a good way to side-step many of the obligations that accompany a business having to be verified, it could have dire consequences for you if such a step is taken purely to avoid your BEE obligations. Rather timeously engage BEE support to help you prepare a proper plan for your business, and which allows you to obtain a good BEE level and keep your business reputation intact. 

December 14, 2015

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