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Posted: 2010-05-25 / Author: Bob Power Corporate Consultants

New Dynamics Get Ahead Of The Game - Bee/corporate Governance

On buying, managing or expanding a small business it is important not to overlook BEE and Corporate Governance requirements.



On buying, managing or expanding a small business it is important not to overlook BEE and Corporate Governance requirements.

The existing requirements of BEE do not necessarily apply to small businesses, because it was recently announced that BEE would not apply to businesses with turnover of less than R5m per annum. In practice, however, it is often a major consideration when tendering for government and other contracts, irrespective of the legal requirements. 10 important points for both Black and White partners to ponder are-

  1. You must not window dress, which is falsely implying that you have BEE compliance. It cannot be denied that fronting as it is called does happen, but if found out your reputation is badly tarnished. White partners try to get fronts so pretending to be something which they are not, so can then obtain contracts/tenders.
  2. Do not put names on your business documents (letterheads etc), implying that you have a BEE director or shareholder, when you have not-This is fraud.
  3. A business with a black name does not meant that it is BEE compliant.
  4. Before entering into a BEE transaction, make sure that you really understand all the requirements for doing so-score sheets, codes, charters etc
  5. Do the parties add value to each other, and are they who they say they are i.e. a consortium is not a legal entity.
  6. Is there a cultural fit and are you able to work with each other, importantly the BEE partner must not have conflicting interests.
  7. Does the BEE partner have the right profile, a good reputation and credibility.
  8. Does the BEE partner take a long term view of the business? and is he available and accessible. He should make sure he has something to offer to dampen negative criticism, and preferably know the business which you are entering.
  9. If a BEE partner contributes towards payment for the shares in a business he should aim for minority protection if he has less than 50% i.e. certain decisions need the consent of both parties? If not contributing then he cannot expect to get such protection. Be careful of deals of buy now pay later.
  10. Both parties must both be genuine with each other-both must get a fair deal.

Turning to Corporate Governance-the following points have relevance-

Small businesses are not excluded from King Reports 2/3-on its way. If the following issues are put in place and the business sold later around 20% can be added to the purchase price.

  1. All statutory records are up to date-especially, minute books, directors and shareholder records. Importantly have the directors, members (Close corporations) been properly appointed.
  2. Ensure that all directors (including non-executive directors) fully understand their legal requirements for accountability, transparency, responsibility, efficiency, honesty and integrity. Do they add value to the Board and not have conflicting interests.
  3. Have a company secretary-depending on size-but have at least an employee who can carry out such functions. Likewise is there succession planning in place.
  4. Ensure that the business is suitably controlled, especially possible risks, and at the present time appropriate security and safety systems are in place. Check out staff carefully before employing them.
  5. Are staff aware of their legal requirements and fairly paid?
  6. Most importantly do they have sound business ethics. Don’t chance your arm with the taxman etc-think good governance whatever you size. Don’t commit the 3 corporate sins-Sloth-Greed and Fear.
  7. Continuing with ethics don’t forget that the money in the business belongs to the business and not you, so if you take it out without business reasons you are guilty of theft.
  8. If a family business endeavour to comply with corporate governance.
  9. Do you have proper communications with stakeholders, suppliers and customers etc?
  10. Is you admin, insurance and financial controls in place.

As set out in a previous chapters make sure you keep away from the bad habits you can pick up in business, especially the most important one, namely after settling down in business and having a sustainable business, instead of getting rid of those “Old” habits you continue with them, which is the worse habit of all. If you really run a “clean ship” and abide by corporate governance requirements, have good management skills, are legally compliant and are honest and importantly the business is profitable and sustainable there is a very good chance that you will get a much better price for the business when you decide to sell it, and you will probably sleep better at night.




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