In terms of Code Series 100, an entity may apply the modified-flow principle to determine the black ownership, where in the chain of ownership structure black people have a flow-through level of participation of at least 51%, then only once in that entire ownership structure of the entity such black participation may be treated as though it were 100%.
The Codes have defined a 51% black owned entity as an entity where a) black people hold at least 51% of the exercisable voting rights as determined under Code Series 100; b) black people hold at least 51% of the economic interest as determined under Code Series 100; and c) has earned all the points for Net Value under Code Series 100.
The Department of Trade and Industry as the custodian of the B-BBEE Policy in its efforts to reduce the cost of compliance on micro and qualifying small businesses in South Africa has relieved black owned and controlled EME and QSE from B-BBEE verification. Such entities are only required to obtain a sworn affidavit on an annual basis or a CIPC certificate in the case of an EME proving their B-BBEE Status.
Thus the introduction of this intervention brought about an exception to the extent to which entities can rely on the modified flow through principle. The intention of the drafter was to limit the calculation of 51% and 100% black ownership for EMEs and QSEs only through the application of the flow through principle, and a different interpretation would be contrary to the spirit and purpose of this intervention, and would require that such entities be subjected to verification to determine compliance with the 40% sub-minimum on Net Value.
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