How do I improve my company's B-BBEE level?

Which measurement category applies to you

The Amended Codes of Good Practice, issued under the B-BBEE Act 53 of 2003, split entities into three categories by annual turnover. An Exempted Micro Enterprise, generally a business with turnover under R10 million, qualifies for its B-BBEE status through a sworn affidavit rather than a full verification, and automatically achieves at least a Level 4 status if it has no black ownership, rising to Level 1 or 2 depending on black ownership percentage.

A Qualifying Small Enterprise, with turnover between R10 million and R50 million, is measured on a simplified scorecard covering fewer elements than the full Generic scorecard, but still requires either a sworn affidavit or a verification depending on ownership levels and the requirements of the party requesting the certificate.

A Generic entity, with turnover above R50 million, must be measured against the full Generic scorecard across all five elements, and in almost all cases requires verification by an accredited ratings agency rather than a self-signed affidavit.

The five elements and priority elements

The Generic scorecard measures ownership, management control, skills development, enterprise and supplier development, and socio-economic development. Ownership, skills development, and enterprise and supplier development are designated priority elements, and a Generic entity must achieve a minimum sub-minimum score on each priority element or its overall level is discounted by one to two levels regardless of its total points.

This is where businesses commonly lose ground without realising it. A company can score well overall and still fail a priority element sub-minimum, which caps the level it can claim. Structuring effort is best directed first at the priority elements, because failing them undermines everything else on the scorecard.

• Ownership: 25 points, priority element with sub-minimum requirements
• Management control: measures representation at board and senior, middle and junior management levels
• Skills development: priority element, measured against leviable payroll spend
• Enterprise and supplier development: priority element, measured against net profit after tax spend
• Socio-economic development: measured against net profit after tax spend

The discounting principle

The discounting principle penalises entities that fail to meet the sub-minimum requirements on any priority element. Where a measured entity fails a single priority element sub-minimum, its overall B-BBEE level is discounted by one level. Failing two or more priority elements discounts the result by two levels, regardless of how strong the remaining elements are.

This is why a scorecard cannot be built by simply chasing the highest available points on the easiest elements. A structuring exercise has to check priority element sub-minimums first, then optimise the rest of the scorecard around whatever ownership and operational reality actually exists in the business.

Structuring ownership properly

Ownership points are earned through actual, unencumbered black ownership of the measured entity's shares, voting rights and economic interest, and through participation by black women, designated groups and new entrants specifically. Common structures include direct shareholding by black individuals, broad-based ownership schemes, and trusts or employee share ownership plans that hold shares on behalf of a defined beneficiary group.

Trusts and employee share ownership plans are legitimate and widely used, but they must meet specific requirements under the Codes to count as black ownership, including proper beneficiary definitions, voting rights that flow through to beneficiaries, and independently verifiable economic interest. A trust structured purely to generate a certificate, without those substantive features, does not survive verification scrutiny and risks being disallowed entirely.

Funding structures for ownership deals matter too. Where black shareholders acquire their interest through vendor finance or third-party debt, the Codes require the debt to be serviced in a way that leaves genuine economic benefit flowing to the shareholders, not merely a paper shareholding that services debt indefinitely without real distributable benefit.

Verification and accredited agencies

Qualifying Small Enterprises and Generic entities above the affidavit threshold, or those whose counterparties require it, must be verified by a ratings agency accredited by the South African National Accreditation System, generally referred to as SANAS accreditation. The verification agency reviews supporting documentation for each element and issues a certificate reflecting the calculated level.

Choosing a properly accredited agency matters. Certificates issued by unaccredited or improperly accredited bodies are not valid B-BBEE certificates and can be rejected by customers relying on them for their own procurement scoring, which defeats the purpose of obtaining the certificate at all.

Fronting practices and how to avoid them

Fronting practices are prohibited under the B-BBEE Act and occur where a business misrepresents its B-BBEE status, including through window-dressing arrangements where black shareholders, directors or employees hold titles or shares without genuine participation, benefit or decision-making authority. Fronting is a criminal offence, and entities found to have engaged in it can be barred from organs of state procurement for up to ten years.

The practical safeguard is straightforward: every structure we put in place has to reflect real economic participation, real decision-making authority where representation is claimed, and documentation that would survive scrutiny by a verification agency and, if it ever came to it, by the B-BBEE Commission.