NPOs and the Revised B-BBEE Codes

governance ngos B-BBEE
Tuesday, 19 November, 2013 - 14:42

The dti has failed to live up to the state’s responsibility to NPOs concerning the revised B-BBEE codes

A review of the amended Broad-Based Black Economic Empowerment (B-BBEE) codes would reveal that the Department of Trade and Industry (the dti) has not lived up to the state’s responsibility to nonprofit organisations (NPOs) as captured in section three of the Nonprofit Organisations Act (NPO Act). Section three of the NPO Act reads - “Within the limits prescribed by law, every organ of state must determine and coordinate the implementation of its policies and measures in a manner designed to promote, support and enhance the capacity of NPOs to perform their functions.” [The] dti has, in our view, not given sufficient attention in the revised codes to NPOs. The following examples illustrate this:

Reference to the outdated Section 21 companies - the revised codes refer to the outdated Section 21 company and defines a Section 21 company as ‘an association not-for-gain incorporated under Section 21 of the Companies Act’ (of 2008) - which is clearly incorrect. The dti is essentially responsible for the promulgation of the Companies Act of 2008 which came into operation on 1 May 2011. This Companies Act has abandoned the concept of a Section 21 company, yet this outdated reference has remained within the revised codes.

Measurement of NPOs:

NPOs with an annual total revenue of R10 million or less qualify as exempted micro-enterprises and are deemed to have a B-BBEE status of ‘level four contributors’.
Importantly, a sworn affidavit of its annual total revenue being less than R10 million should be sufficient proof to qualify NPOs as exempted micro-enterprises. There should accordingly be no need for such NPOs to pay accreditation agencies to issue BEE certificates confirming their B-BBEE status. However, the codes do not deal expressly with NPOs that have total revenue of more than R10 million.

Paragraph 3.3.2.2 of Statement of 000 of the revised codes provides that: a qualifying small enterprise (R10-50 million) ‘is required to comply with ownership as a compulsory element, and either skills development or enterprise and supplier development’. No express provision is made for qualifying small enterprises that do not have an ‘ownership’ element. There is accordingly no clear guidelines in the revised codes on how NPOs with an annual revenue between R10 to 50 million will be measured.

In contrast, provision was made in the initial Codes of 2007 for an Adjusted Generic Scorecard and an Adjusted Qualifying Small Enterprises Scorecard to accommodate entities that do not have ownership like NPOs. NPOs with an annual turnover between R5 to R35 million were eligible as qualifying small enterprises in terms of the Adjusted Qualifying Small Enterprises Scorecard which did not have the ‘ownership’ element.

Socio-Economic Development:

The scorecard element dealing with Socio Economic Development (SED) Contributions is perhaps the most important element for most NPOs. Corporates would usually make donations towards NPOs to implement the SED activities. What qualifies as SED Contributions is defined by the revised codes. The revised codes provide that SED Contributions must be for the objective of facilitating income generating activities for targeted beneficiaries. This appears to be different from the initial codes where the objective of SED Contributions was facilitating sustainable access to the economy for those beneficiaries. These are two seemingly different objectives.

However, the definition section of the revised codes reverts to the language in the initial codes and provides that: ‘The objective of Socio-Economic Development Contributions is the promotion of sustainable access for the beneficiaries to the economy.’ It appears therefore that SED Contributions can be for the purpose of facilitating income generating activities and promoting sustainable access for the beneficiaries of the economy.

Transitional Period:

The revised codes provide that until 10 October 2014, a measured entity may elect to use the Amended Codes of good practice or the Generic Scorecard of the initial Codes. By implication, NPOs do not have this option because the Generic Scorecard includes the ownership element. NPOs will accordingly have to use the Revised Codes.

- Ricardo Wyngaard, Ricardo Wyngaard Attorneys www.nonprofitlawyer.co.za, Email: ricardo@nonprofitlawyer.co.za

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