When you hear the term ‘stock exchange’, instantly what visuals come to your mind?
Typically, national or international stock markets are physical or e-places where capital market transactions take place day-in, day-out for last few centuries. These stock exchanges are created with the sole intent of facilitating investors to make investments in listed securities to earn short term profits or long term capital gains on their investments and buy / sell securities as per their needs. Further, these exchanges facilitate companies to sell their securities to generate capital for business development or to buy back shares to get hold of more control on the company affairs.
However, Securities Exchange and Board of India (SEBI) has recently approved a new concept of Social Stock Exchange (SSE) – it would be a separate segment of trading designed only for non-profit organizations (NPO). The intent behind creation of this new ecosystem is to enable NPO to generate funds in a systematic way in contrast to traditional method of solely depending on donors and contributors.
SSE concept is introduced with the aim to enable the private and non-profit sectors with social objectives to get more access to different fund generating sources. A new set of regulations have been enacted especially for operations of SSE and to establish eligibility criteria to trade on SSE.
Only NPOs and for profit social enterprises with agenda of social objectives and whose primary beneficiaries are under-served or less privileged people are eligible to trade on SSE.
The social objectives for NPOs and for profit companies to qualify as listed entity on SSE are as under:
a) Eradication of poverty and inequality
b) Support to develop education, and employment prospects of oppressed and weaker sections of the society
c) Promoting incubators of social enterprise
d) Agenda of equal employment opportunities especially for women and LGBTQIA communities
e) Eradication of hunger and malnutrition
f) Promoting of healthcare system
g) Corporate foundations, and professional or trade associations
h) political or religious organizations or activities
i) infrastructure companies, and housing companies, excluding affordable housing.
Minimum requirements:
Legal requirements:
a) Entity must be registered as NPO in the form of a charitable trust under public trust statue of the relevant state or Societies Registration Act, 1860 or the Indian Trusts Act, 1882 or a company under section 8 of the Companies Act, 2013 with a valid registration for next 12 months at the time of submission of registration of certificate to SSE.
b) NPO owned by government or private have to submit governing documents (MOA, AOA etc.,) and valid registration documents (such PAN, 80G registration etc.,)
c) Registration Certificate under section 12A/12AA/12AB under Income Tax Act, 1961 with a validity of 12 months, provided such NPO is not subject to any scrutiny of income tax department
d) Valid registration document with a standing of minimum of three years
Financial requirements:
Annual Spending in the past financial year – Must be INR 50 lakhs
Funding in the past financial year – Must be INR 10 lakhs
Initial disclosure requirements: NPOs may be required to make specific disclosures on the following subjects at the time of making initial disclosure requirements:
a) Activities and programs designed to achieve the objectives and purposes of the entity.
b) Clear identification and understanding of the problems of the target segment and intended measures to address such problems.
c) Planning to accomplish its vision by integrating required capabilities and learning from challenges.
d) Organization structure and governing body structure with specific details of each department with an outline of roles and responsibilities allocated to each department.
e) Details of Organization place of business, place of production and place of registered office.
f) Disclosure of last three years properly audited financial statement of the entity along with highlighting any material discrepancies from statutory requirements
g) Governing and registration documents along with other required statutory and compliance filings
h) Risks associated with NPOs social work and measures (actual or potential) taken to mitigate such risks.
Annual disclosure requirements:
NPOs registered on SSE would be required to make the following annual disclosures within 60 days of completion of a given financial year:
a) Name of organization along with registered office address or other address details
b) Vision and objectives
c) Products and services offered
d) List of i) beneficiaries (direct, indirect and institutional), (ii) top 5 investors, donors, and contributors, (iii) employees and volunteers; and (iv) top 5 programs designed to achieve objectives.
e) Organizational structure and operations charter of all departments and details of governing and executive body with names, roles and responsibilities and remuneration of each individual.
f) List of governing and operating committees and details of executive and other meetings of NPOs with details of attendees, meeting agenda, resolutions and actions taken to accomplish such resolutions.
g) Identification of potential risks and mitigation plans.
h) Mechanism to resolve any disputes with ethics, misconduct, conflict of interests etc.
i) List of related parties and transactions with them.
j) Grievance redressal committee and related procedures to resolve grievances along with list of resolved and existing grievances.
k) Legal, regulatory and compliance mechanism to implement such requirements in line with organization policies and procedures
l) Disclosure of registration documents, statutory filings (including financial filings and statements), audit reports reflecting receipts and spendings of NPO.
Annual Impact Report:
All Social Enterprises (SEs) will have to provide to SSE a duly audited Annual Impact Report (AIR). Time period to submit AIR is within 90 days from the end of Financial Year.
The prime objective behind AIR is to reflect the social impact created by NPO based on the qualitative and quantitative aspects disclosed by spending the funds generated by NPO.
AIR for NPO without listed security have to include NPO’s significant activities, intervention, programs or projects during the year and with detailed explanation of the methodology adopted for determination of significance of social impact.
In case of listed security, related activity, intervention, program or projects will qualify as a significant activity, intervention, program or project.
AIR must include details of source of funding (i.e investee/grantee organizations where the fund is deployed).
AIR should at a minimum, cover the aspects described below:
Strategic Intent and Planning with details of social or environmental challenge it aimed to resolve and measures adopted by NPO to attend the such challenge with specific details of such challenge on target segment prior to involvement and after involvement of NPO in the said challenge and outcome of efforts of NPO in said challenge (positive or negative).
Analysis of activity/intervention/programs or project (From beginning of the project and the status of such project at the end of year) along with any changes in such projects or programs to align with Sustainable Development Goals.
Consideration of feedback from target segment (if any) and biggest risk and challenge faced or identified in the process of accomplishing targeted social impact.
An Impact Score Card based on the metrics monitored reflecting progressive or regressive trend with validation from target segment through surveys and other feedback mechanisms.
Detailed audit of AIR by qualified auditors.
Statement of utilization of funds:
Within 45 days from the end of applicable quarter, listed NPO shall submit statement of utilization of funds to SSE.
The concept and idea behind SSEs seems to be noble and useful for the society at large. An effective implementation of the regime should pave way for more transparency and efficient utilization of funds generated through this mechanism.
