SEBI notifies framework for Social stock exchange – 25 th July, 2022

SEBI vide its notification dated 25^th July, 2022 made amendments SEBI (ICDR) Regulations, 2018, and SEBI (LODR) Regulations, 2015. These amendments will immediately come into effect. The amendment has been made in order to provide social enterprises with an additional avenue to raise funds.

The notification said that framework for the Social stock exchange (SSE) has been developed on the basis of recommendations of a working and technical group constituted by SEBI.

The social stock exchange is a novel concept in India and such a bourse is meant to serve the private and non-profit sectors by channelling greater capital to them. The idea of SSE was first floated by finance minister Nirmala Sitharaman in her Budget Speech 2019-20.

The amendment provides for a framework for Social stock exchange which majorly provides eligibility of organizations to raise funds through Social stock exchange, eligibility of entities to be classified as “Not for Profit Organization”, eligibility of entities to be classified as “For Profit” Social Enterprise, Means through which Social enterprise can raise funds, obligations of Social enterprises.

• Organization eligible to raise funds through Social Stock exchange :

1. a Not for Profit Organization seeking to only get registered with a Social Stock Exchange;
2. a Not for Profit Organization seeking to get registered and raise funds through a Social Stock Exchange;
3. a For Profit Social Enterprise seeking to be identified as a Social Enterprise under the provisions of this Chapter.

• “Not for Profit Organization” means a Social enterprise which is any of the following entities:

(i) a charitable trust registered under the Indian Trusts Act, 1882;

(ii) a charitable trust registered under the public trust statute of the relevant state;

(iii) a charitable society registered under the Societies Registration Act, 1860;

(iv) a company incorporated under section 8 of the Companies Act, 2013;

(v) any other entity as may be specified by the Board;

• “For Profit” Social Enterprise” shall fulfill the following eligibility criteria to be identified as a Social Enterprise: a) The Social Enterprise shall be indulged in at least one of the following activities:
  1. eradicating hunger, poverty, malnutrition and inequality;
  2. promoting health care including mental healthcare, sanitation and making available safe drinking water;
  3. promoting education, employability and livelihoods;
  4. promoting gender equality, empowerment of women and LGBTQIA+ communities;
  5. ensuring environmental sustainability, addressing climate change including mitigation and adaptation, forest and wildlife conservation;
  6. protection of national heritage, art and culture;
  7. training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports;
  8. supporting incubators of Social Enterprises;
  9. supporting other platforms that strengthen the non-profit ecosystem in fundraising and capacity building;
  10. promoting livelihoods for rural and urban poor including enhancing income of small and marginal farmers and workers in the non-farm sector;
  11. slum area development, affordable housing and other interventions to build sustainable and resilient cities;
  12. disaster management, including relief, rehabilitation and reconstruction activities;
  13. promotion of financial inclusion;
  14. facilitating access to land and property assets for disadvantaged communities;
  15. bridging the digital divide in internet and mobile phone access, addressing issues of misinformation and data protection;
  16. promoting welfare of migrants and displaced persons;
  17. any other area as identified by the Board or Government of India from time to time
• the Social Enterprise shall target underserved or less privileged population segments or regions recording lower performance in the development priorities of central or state governments

• the Social Enterprise shall have at least 67% of its activities, qualifying as eligible activities to the target population, to be established through one or more of the following:

1. at least 67% of the immediately preceding 3-year average of revenues comes from providing eligible activities to members of the target population;
2. at least 67% of the immediately preceding 3-year average of expenditure has been incurred for providing eligible activities to members of the target population;
3. members of the target population to whom the eligible activities have been provided constitute at least 67% of the immediately preceding 3-year average of the total customer base and/or total number of beneficiaries.

• A Social Enterprise can raise funds through following means:
• a Not for Profit Organization may raise funds on a Social Stock Exchange through:
  1. issuance of Zero Coupon Zero Principal Instruments to institutional investors and/or non-institutional investors in accordance with the applicable provisions of this Chapter;
  2. donations through Mutual Fund schemes as specified by the Board;
  3. any other means as specified by the Board from time to time.
• A For Profit Social Enterprise may raise funds through:
  1. issuance of equity shares on the main board, SME platform or innovators growth platform or equity shares issued to an Alternative Investment Fund including a Social Impact Fund;
  2. issuance of debt securities;
  3. any other means as specified by the Board from time to time.

Ineligibility for raising of funds :

A Social Enterprise shall not be eligible to register or raise funds through a Social Stock Exchange or Stock Exchange, as the case may be:

• if the Social Enterprise, any of its promoters, promoter group or directors or selling shareholders or trustees are debarred from accessing the securities market by the Board;
• if any of the promoters or directors or trustees of the Social Enterprise is a promoter or director of any other company or Social Enterprise which has been debarred from accessing the securities market by the Board;
• if the Social Enterprise or any of its promoters or directors or trustees is a wilful defaulter or a fraudulent borrower;
• if any of its promoters or directors or trustees is a fugitive economic offender;
• if the Social Enterprise or any of its promoters or directors or trustees has been debarred from carrying out its activities or raising funds by the Ministry of Home Affairs or any other ministry of the Central Government or State Government or Charitable Commissioner or any other statutory body.

• Obligations of a Social Enterprise which are provided under Chapter IX-A of SEBI LODR Regulations:

                  Disclosures by a For Profit Social Enterprise :

A For Profit Social Enterprise whose designated securities are listed on the Stock Exchange(s) shall comply with the disclosure requirements contained in these regulations with respect to issuers whose specified securities are listed on the Main Board or the SME Exchange or the Innovators Growth Platform, as the case may be.

Disclosures by a Not for Profit Organization :

A Not for Profit Organization registered on the Social Stock Exchange(s), including a Not for Profit Organization whose designated securities are listed on the Social Stock Exchange(s), shall be required to make annual disclosures to the Social Stock Exchange(s) on matters specified by the Board, within 60 days from the end of the financial year or within such period as may be specified by the Board.

In addition to the disclosures referred in sub-regulation (1), the Social Stock Exchange(s) may specify matters that shall be disclosed by the Not for Profit Organization on an annual basis

Intimations and disclosures by Social Enterprise of events or information to Social Stock Exchange(s) or Stock Exchange(s) :

1. Framing a policy for determination of materiality, duly approved by its board or management.
2. To authorize one or more of its Key Managerial Personnel for the purpose of determining materiality of an event or information.
3. Disclosure of any event that may have a material impact on the planned achievement of outputs or outcomes within 7 days from the occurrence of any event.
4. The Social Enterprise shall provide updates on a regular basis along with relevant explanations in respect of the disclosures required in sub-regulation (3) till the time the concerned event remains material.
5. The Social Enterprise shall provide specific and adequate reply to all queries raised by the Social Stock Exchange(s) or the Stock Exchange(s), as the case may be, with respect to any events or information:

Provided that the Social Stock Exchange(s) or the Stock Exchange(s), as the case may be, shall disseminate the information and clarification as soon as reasonably practicable.

• The Social Enterprise may suo moto confirm or deny any reported event or information to Social Stock Exchange(s) or the Stock Exchange(s), as the case may be
• The Social Enterprise shall disclose on its website all such events or information which have been disclosed to the Social Stock Exchange(s) or the Stock Exchange(s), as the case may be, under this regulation.