Understanding Joint Ventures for B-BBEE Purposes

Understanding Joint Ventures for B-BBEE Purposes

Joint Ventures for B-BBEE Purposes

In 2019, the generic Broad-Based Black Economic Empowerment Codes (hereafter referred to as the ”B-BBEE Codes”) were amended. The amendments were published in the Government Gazette on 31 May 2019 and came into operation and effect on 1 December 2019.

The amended B-BBEE Codes provided much-needed clarity and guidance on how to calculate a consolidated BEE Certificate when it comes to Joint Ventures. To determine which scorecard will be applicable and whether the Joint Venture will be rated as a QSE or Generic Entity, the turnovers of all the parties in the Joint Venture will be consolidated.

The turnover, shares and weight of each partner in accordance with the Joint Venture Agreement will have an influence on the BEE level of the Joint Venture certificate. In this article we aim to explain a few basic facts about Joint Ventures.

What is a Joint Venture?

A Joint Venture (JV) is a business arrangement between two or more parties, individuals or entities, in terms of which they enter into an agreement and combine their resources for the sole purpose of completing a specific tender or business transaction.

The relevant parties will need to have a valid BEE affidavit or BEE SANAS certificate for their respective enterprises before they can proceed to apply for a Joint Venture certificate. If either party’s B-BBEE status is invalid, they will not be able to obtain a Joint Venture certificate. Joint Venture certificates can only be issued by a SANAS-accredited agency. This Joint Venture certificate will be valid for a period of 12 months and only applicable to a specific tender or business transaction.

Why consider a Joint Venture?

There are various reasons for entering into a Joint Venture:

  • An enhanced financial position for a tender or business transaction;
  • Achieve functionality requirements on a tender or business transaction;
  • To capitalise on the individual specialty skillsets of both parties for a tender or business transaction;
  • Can create financial security for a tender or business transaction;
  • Joint Ventures help companies to tender for specialised and bigger projects.

Scores allocated for unincorporated Joint Ventures:

The amended B-BBEE Codes govern the score for those companies measured as Qualifying Small Enterprise (QSEs) because their “B-BBEE score out of 100, must be used to calculate the consolidated score”. The following scores will be allocated for unincorporated joint ventures, where the measured entities are at–

  • Level 1: (100% Black-Owned EME or QSE) – JV Score = 100 points
  • Level 2: (51% Black-Owned EME or QSE) – JV Score = 95 points
  • Level 4: (Less than 51% Black-Owned EME) – JV Score = 85 points
  • Large Enterprises and QSEs: (<51% Black Owned): Current Score on B-BBEE Certificate. 

Joint Ventures and B-BBEE

As with any other business decision or transaction, it is important to choose the correct partner when entering into a Joint Venture. You must make sure that all parties share the same vision and will be able to fulfil their responsibilities in terms of the agreement. It is thus important to do your research on the other entities before entering into a Joint Venture with them.

Entering into a Joint Venture with the correct BEE partner can help entities obtain a better BEE level and tender for more projects than had they been on their own. Joint Ventures, especially in the construction sector, further enable entities to combine their expertise, machinery and workforce to tender for big and specialised projects all over the country.

Conclusion:

There are various reasons why entities would consider entering a Joint Venture, but for BEE purposes the main reason is usually that it offers a better BEE level, while the combined resources of the entities enable them to tender for more and bigger projects than they would have been able to on their own.

SERR Synergy, in association with various SANAS-accredited agencies, provides a complete range of B-BBEE Verification Services. We have developed a sound and comprehensive verification methodology in order to simplify and rationalise the BEE audit process. We assist clients in the verification process step by step, and our services include facilitation with the issuing of an accredited BEE verification certificate (including Joint Venture Certificates) by an accredited verification agent.

About the Author: Sanél Cornish joined SERR Synergy in October 2019 as a B-BBEE professional. She graduated from the University of Stellenbosch in 2014 with a B.Com Law degree and in 2016 completed her postgraduate LLB degree whereafter she was admitted as a Legal Practitioner of the High Court of South Africa in February 2019.

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