B-BBEE level checker

This checker tells a business where it sits under the Broad-Based Black Economic Empowerment Codes of Good Practice: whether it is an exempt micro enterprise, a qualifying small enterprise or a generic enterprise, which contributor level it gets automatically from its ownership, and whether a sworn affidavit is enough or a verification agency has to be paid. It is for small business owners who have been asked for a "BEE certificate" by a customer or a tender and want to know what they can produce, for start-ups deciding on ownership structure, and for growing businesses approaching the turnover lines where the rules change.

The three turnover bands and the automatic levels have been stable since the Amended Codes, but the sector codes that override them for specific industries have not, which is why the checker is explicit about being the generic position.

What this calculator works out and who it is for

You enter your annual turnover for the last financial year, the percentage of the business owned by black people as the Act defines them, and whether this is your first year of trading. The checker returns your category, your level if one follows automatically, and the proof you need: an affidavit or a verification certificate. It adds a warning about fronting where an affidavit is involved, and a warning about the turnover cliff when you are within ten per cent of the EME ceiling.

It is for businesses measured under the generic Codes. If you are in construction, tourism, information and communication technology, financial services, transport, property, agriculture, forestry, marketing and advertising, or the defence sector, a sector code applies, with its own thresholds and scorecards, and the generic answer may be wrong for you.

How the calculation works

The checker first assigns a category by turnover. Turnover of R10 million or less makes the business an exempt micro enterprise, an EME. Turnover above R10 million up to R50 million makes it a qualifying small enterprise, a QSE. Above R50 million it is a generic enterprise. A start-up is measured as an EME in its first year of trading whatever its turnover, and the checker applies that if you tick the box.

It then works out the automatic level from black ownership. An EME is a level 4 contributor automatically, level 2 if it is at least 51 per cent black-owned, and level 1 if it is 100 per cent black-owned. A QSE that is at least 51 per cent black-owned gets the same automatic levels, 2 or 1. A QSE below 51 per cent black ownership has no automatic level and is measured on the QSE scorecard. A generic enterprise always needs the full scorecard.

Finally it tells you the proof. An EME proves its status and level with a sworn affidavit, or a certificate issued by the CIPC when registering. A QSE at 51 per cent or more does the same. Everyone else needs a verification certificate from an agency accredited by SANAS, renewed annually.

The law behind the numbers

The Broad-Based Black Economic Empowerment Act 53 of 2003, as amended in 2013, empowers the Minister of Trade, Industry and Competition to issue Codes of Good Practice, and section 10 requires every organ of state and public entity to apply them in procurement, licensing, public-private partnerships and the sale of state assets. Private companies are not obliged to be measured, but their customers frequently insist, because a supplier's level feeds the customer's own scorecard under the enterprise and supplier development element.

The Amended Codes of Good Practice, gazetted in 2013 and in force from 2015 with later amendments, set the thresholds the checker uses. Code series 000 statement 000 defines an EME as an entity with annual total revenue of R10 million or less, and a QSE as one with annual total revenue of more than R10 million but less than R50 million. Both figures are turnover, not profit. The Codes provide that an EME is deemed to have a B-BBEE status of level 4, and that an EME which is at least 51 per cent black-owned qualifies for elevation to level 2 and one which is 100 per cent black-owned to level 1. A QSE that is at least 51 per cent black-owned is similarly deemed to be level 2, and at 100 per cent, level 1. Start-ups are measured as EMEs for their first year.

An EME is only required to produce a sworn affidavit confirming its annual total revenue and level of black ownership, or a CIPC-issued certificate, and the Codes say so expressly; a QSE that is at least 51 per cent black-owned may do the same. The affidavit is a sworn statement before a commissioner of oaths, and section 13O of the Act makes it a criminal offence to misrepresent B-BBEE status, including by fronting. The penalties are a fine of up to ten per cent of annual turnover or imprisonment of up to ten years, and a ban from state contracts for up to ten years.

For a QSE below 51 per cent and for all generic enterprises, the scorecard applies. The generic scorecard measures five elements: ownership, management control, skills development, enterprise and supplier development, and socio-economic development, with points weighted towards ownership and supplier development. Three of them, ownership, skills development and enterprise and supplier development, are priority elements with a sub-minimum of 40 per cent of the available points; a generic enterprise that misses the sub-minimum on any priority element is discounted one level from what it would otherwise have scored. A QSE must meet the sub-minimum on ownership and on one of the other two. The levels run from 1, at 100 points or more, to 8, at 40 points, with non-compliant below that.

Black people, for the purposes of the Act, means Africans, Coloureds and Indians who are South African citizens by birth or descent, or who became citizens by naturalisation before 27 April 1994 or would have been entitled to had the law allowed it. Ownership is measured on voting rights and economic interest flowing to black people, and the Codes have detailed rules on trusts, broad-based schemes, and the recognition of ownership after a black shareholder has exited.

Worked example

Kagiso and Pieter run a signage business, 60 per cent owned by Kagiso, who is black, and 40 per cent by Pieter, who is not. Turnover last year was R6 million. A mining customer has asked for their B-BBEE certificate.

Turnover of R6 million makes the business an EME. Black ownership of 60 per cent is at least 51 per cent, so the automatic level is 2. The checker says: exempt micro enterprise, automatic level 2 on an affidavit. Kagiso and Pieter do not need a verification agency. They swear an affidavit before a commissioner of oaths stating the turnover and the black ownership, using the template the dtic publishes, and give it to the customer. The checker warns that overstating the ownership on the affidavit would be fronting.

Two years later turnover is R12 million. The business is now a QSE. Because it is still 60 per cent black-owned, it keeps the affidavit route and remains level 2. Had Kagiso held 45 per cent, the business would have lost the affidavit route at the moment it crossed R10 million, would need a QSE scorecard verification costing tens of thousands of rand a year, and would score zero on the ownership element, which is the heaviest. The checker's warning when turnover is within ten per cent of the EME ceiling exists for exactly that cliff.

What the calculator does not include

It does not apply sector codes. The construction, tourism, ICT, financial services, transport, property, agriculture, forestry, marketing and advertising and defence sector codes have different thresholds and scorecards, and some have different EME and QSE lines.

It does not calculate a scorecard. For a QSE below 51 per cent or a generic enterprise, the level depends on points across five elements that need a verification agency and documentary evidence.

It does not deal with the detailed ownership rules: how a trust or an employee share scheme is counted, the net value test, the continued recognition of ownership after a black shareholder sells, or the treatment of black women, black youth and black designated groups, which carry additional points.

It does not address the procurement side: how a supplier's level translates into recognition points for its customer, or the preferential procurement regulations that apply to state tenders.

It does not tell you whether you need a certificate at all. Many businesses do not. The pressure comes from customers, tenders and licensing, not from the Act directly.

When to get advice

An EME with a straightforward ownership structure can produce its own affidavit using the dtic template and does not need a consultant. Get advice if your ownership involves a trust or a scheme, if you are a QSE deciding whether to restructure ownership to reach 51 per cent, if you are approaching the R10 million or R50 million line and want to understand what changes, or if you operate in a sector with its own code. Get advice before any transaction that is presented as a way to "get a certificate" without a real transfer of ownership and economic benefit, because that is where fronting prosecutions come from, and the business owner signing the affidavit carries the risk.

Frequently asked questions

What is an EME? An exempt micro enterprise: a business with annual turnover of R10 million or less, or a start-up in its first year. It is a level 4 contributor automatically, level 2 if at least 51 per cent black-owned and level 1 if 100 per cent black-owned, and it proves this by sworn affidavit.

What is a QSE? A qualifying small enterprise: turnover above R10 million up to R50 million. At 51 per cent black ownership or more it gets the same automatic levels as an EME on an affidavit. Below that it is measured on the QSE scorecard by a verification agency.

Do I need a verification agency? Not if you are an EME, or a QSE at least 51 per cent black-owned; an affidavit suffices. Otherwise yes, from a SANAS-accredited agency, renewed every year.

What does level 4 mean? It is the default level for an EME and gives your customer 100 per cent recognition of its spend with you on its own scorecard. Level 1 gives 135 per cent and level 2 gives 125 per cent, which is why customers prefer higher-level suppliers.

Is a BEE certificate compulsory? No law requires a private business to be measured. The state must apply the Codes in procurement and licensing, and large companies push the requirement down to suppliers, so in practice many businesses need one to trade with them.

What is fronting? Misrepresenting B-BBEE status, typically by showing black ownership or management on paper that does not exist in substance. It is a criminal offence under section 13O of the Act, with fines of up to ten per cent of turnover.

Do sector codes change the thresholds? Yes, some do. If you are in construction, tourism, ICT, financial services, transport, property, agriculture or another sector with its own code, check that code before relying on the generic answer.