September 20, 2022


New Delhi: Capital markets regulator Sebi on Monday came out with a detailed framework for social stock exchange, specifying minimum requirements for a Not-for-Profit Organisation (NPO) for registering with the bourse and disclosure requirements. This came after the Securities and Exchange Board of India (Sebi), in July, notified rules for Social Stock Exchange (SSE) to provide social enterprises with an additional avenue to raise funds.

SSE is a novel concept in India and such a bourse is meant to serve the private and non-profit sectors by channeling greater capital to them. The idea of SSE was first floated by Finance Minister Nirmala Sitharaman in her Budget speech for the financial year 2019-20.

In its circular, the regulator specified minimum requirements to be met by a NPO for registration with SSE, disclosure requirements for NPOs raising funds through the issuance of zero-coupon zero principal instruments and put in place annual disclosure requirements that needs to be made by NPOs on such exchanges.

Listed NPO will have to submit a statement of utilisation of funds to SSE, as mandated under Sebi’s rules within 45 days from the end of quarter.

Also, Sebi has asked social enterprises raising funds using SSE to disclose Annual Impact Report (AIR) within 90 days from the end of financial year, capturing the qualitative and quantitative aspects of the social impact generated by the entity and where applicable, the impact that is generated by the project or solution for which funds have been raised on SSE.

Under the rules, SSE will be a separate segment of the existing stock exchanges.

Social enterprises eligible to participate in the SSE will be entities – NPOs and for-profit social enterprises – having social intent and impact as their primary goal.

Also, such an intent should be demonstrated through its focus on eligible social objectives for the underserved or less privileged populations or regions.

The social enterprises will have to engage in a social activity out of 16 broad activities listed by the regulator. The eligible activities include eradicating hunger, poverty, malnutrition and inequality; promoting healthcare, supporting education, employability and livelihoods; gender equality empowerment of women and LGBTQIA+ communities; and supporting incubators of social enterprise.

Corporate foundations, political or religious organisations or activities, professional or trade associations, infrastructure and housing companies, except affordable housing, will not be eligible to be identified as a social enterprise.

With regard to minimum requirements to be met by a NPO, Sebi said that NPO needs to be registered as a charitable trust and should be registered for at least three years, must have spent at least Rs 50 lakh annually in the past financial year and should have received a funding of at least Rs 10 lakh in the past financial year.

Specifying initial disclosure requirement for NPOs raising funds through the issuance of zero coupon zero principal instruments, Sebi said such entities need to make disclosure about its vision, disclose target segment (those affected by the problem and how are they affected) and approach to accomplish its planned activities; details of its governing body, composition, dates of board meetings held; and details of key managerial staff.

In addition, NPOs need to make disclosure of financial statements for the last three financial years, details of past social impact and risks that they see to its work and how it proposes to mitigate these.

In respect of annual disclosure by NPOs on SSE which have either raised funds through SSE or are registered with SSE, Sebi said that such NPOs will have to disclose about details of top five donors or investors in terms of budget, scale of operations, including employee and volunteer strength, governance structure, financial statement, programme-wise fund utilisation for the year and auditors report and auditor details.




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