Rethink the use of a Trust as a B-BBEE Ownership Vehicle

The following must be kept in mind when considering a trust:

  • The beneficiaries must exercise voting rights, receive the same economic benefits as other shareholders and ultimately become unencumbered owners of the shares in which they are invested – (Shareholding and Dividends must go to Trust Beneficiaries).
  • Beneficiaries must have vested rights to receive distribution of income and benefit from the trust – (Trust must pay out income to Beneficiaries).
  • The Codes explicitly require that on winding‑up or termination of the trust, all “accumulated Economic Interest” must be transferred to the beneficiaries or an entity with similar objectives – (If you terminate Trust based Ownership Vehicle, ownership must pass to Beneficiaries).
  • Compliance with the requirements for Trusts in terms of the Income Tax Act also became more difficult, if not impossible – (Severe Administrative load placed on Entity to ensure Trust Compliance)
  • Due to the above points, a Trust Ownership Vehicle is mostly seen as a method of Fronting.

Penalties for Fronting

A natural or juristic person convicted of fronting practice(s) in terms of the B-BBEE Act may be liable to a fine of up to 10% annual turnover or a maximum prison of ten (10) years.  Further, any natural or juristic person convicted of an offence in terms of the B-BBEE Act may not for a period of 10 years from date of conviction, conducting business with any organ of the state or public entity and will be registered in a register of the tender defaulters with the National Treasury – (This will effectively CLOSE YOUR BUSINESS).

“Information obtained from B-BBEE Codes of Good Practice as well as various other professional Opinions and articles.”