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10 Essential Business Contracts
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An example of the application of the Modified Flow Through Principle

Use the Modified Flow Through Principle to Improve your Ownership Score

The Modified Flow Through Principle is an integral part of the Broad-Based Black Economic Empowerment codes. The code permits a company to enhance (double) its ownership percentage, by incorporating a new company and holding the BEE shares in that vehicle. Importantly, the existing (non-BEE) vendors would then hold 49% of the shares in the new company.

EME’s and QSE’s

Under the current framework for Broad-Based Black Economic Empowerment, entities that have a total annual revenue of less than R10 million, called Exempted Micro Enterprises (EME), automatically qualify for:

Level 1 if the company is 100% black owned
Level 2 if the company is 51% black owned
Level 4 if there is no black ownership

A second category exists for companies that have a turnover of less than R50 million – called Qualifying Small Enterprises (QSE). A QSE automatically qualifies for

Level 1 if the company is 100% black owned
Level 2 if the company is 51% black owned

Double your Ownership Score

Using the Modified Flow Through Principle, companies can effectively double up their ownership score.

Provided that new entity is 50.1% black owned, the entire entity is seen as being black owned.  In short, this means that the existing shareholders can own the 49.9% with the result that the 50.1% shareholding equates to 25%. Put simply, this enables companies to seriously their ownership score under the BEE codes.

The Modified Flow Through Principle also impacts all other companies (other than EME & QSEs), save that the principle only applies to voting and equity, being the highest scoring of the categories relating to  ownership.

For all shelf companies, and legal contracts & documents related to these structures, including the affidavits that are required to obtain a BEE certificate for an EME or a QSE, visit contractzone.co.za or email us at admin@contractzone.co.za

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