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  • Ownership points via the Sale of Assets

Ownership points via the Sale of Assets

12 October 2016

By Gcina Mahlaba, Transformation Manager at BDO SA

The sale of assets is one of many alternative indirect options to attaining BBBEE ownership. Indirect equity and other forms of ownership are recognisable under the equity ownership element of the B-BBEE Codes if they contribute towards increasing the number of Blacks who own, control and manage economic assets and resources in the mainstream economy.

For a measured business to earn ownership points from indirect equity and other forms of ownership contributions, it is required to abide by certain specific rules

Other alternative include but not limited to:

  • Broad Based Ownership Schemes and Employee Share Ownership programmes
  • Ownership held by Trust
  • Equity Equivalent programs
  • Ownership held through options, share warrants and preference shares

Sale of Assets

The sale of an asset is a very common business concept, companies often sell off divisions or even brands. The B-BBEE codes of good practice allow for certain types of sale of assets to contribute to your ownership points.

This is only possible if a Sale of Asset is done to a (minimum) 51% black owned entity. This includes the sale of a building, land, warehouse, IP, equipment, an operating division, a license or any other defined asset. The value of the Asset as a percentage of the measured entity determines the Ownership percentage score, allocated to the entity and this transaction is then measured over three years. The value of the transaction in year 3 is then applied as the Ownership score indefinitely.

However, the B-BBEE points can sometimes be earned. This is dependent on whether the transaction meets the following rules:

1. A qualifying transaction in terms of this statement may involve the sale of:

  • an Asset;
  • a Business; or
  • Equity Instruments in an entity

2. The asset being sold must be an ongoing business. A piece of machinery for example will not qualify, but a sale of a division or subsidiary may qualify.

3. It must result in the creation of viable and sustainable businesses or business opportunities in the hands of black people; and

4. It must result in the transfer of critical and specialised skills, managerial skills, and productive capacity to black people.

5. A Sale of Asset, Equity Instrument and business must involve a separately identifiable related business which has:

  • No unreasonable limitations or conditions with regards to its clients or customers;
  • Clients, customers or suppliers other than the Seller.
  • B-BBEE shareholders or their successors if the B-BBEE shareholding is the same or improved holding the asset for a minimum of three years.

6. Any operational outsourcing arrangements between the Seller and the separately identifiable related Business must be negotiated at arms-length on a fair and reasonable basis.

7. The transaction should be evaluated by an independent expert.

Note: The codes say “transfer of business rights by way of license, lease or other similar legal arrangements not conferring unrestricted ownership; and sales of franchises by franchisors to franchisees, but includes sales of franchises from franchisees to other franchisees or to new franchisees do not qualify for recognition”.

To clarify, if a company helped a black participant to invest in a franchise, this would be regarded as Enterprise Development and not sale of assets.

Furthermore, the asset must be valued, and compared to the value of the entire business. This is the basis for recognition. If the asset is worth 10% of the whole business, then a company could be regarded as having sold 10% of its business. The new owner’s status is used to then calculate the points.

An example of how the sale of assets can be calculated:

Company A

Total value R50 million

Value of division to be sold to company B is: R 20 Million (40% of total value)

Company B

Percentage Black ownership and voting rights is 100%

Company A sells a division worth R20 million to company B. Company A would then be entitled to an equivalency percentage which would be the value of the asset at a percentage of the value of the company multiplied by the black ownership percentage of the company that bought the asset



A is the Equivalency Percentage for each of the indications in paragraphs 2.1 and 2.2 of the ownership scorecard

B is the value of the Qualifying Transaction to the separately identifiable related Business determined using a Standard Valuation method

C is the value of the Seller determined using a Standard Valuation method

D is the indicator Percentage of the separately identifiable related Business


A= R 20m/R 50m*100%

A= 40%

In other words Company A would be deemed to have 40% notional black shareholding although they have no black shareholders of the company

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