TO KNOW MORE ABOUT SOCIAL STOCK EXCHANGES
Social Stock Exchanges (SSE) is an electronic fundraising platform that allows investors to buy funds in a social enterprise that has been examined by the recognized stock exchange. Social enterprises is a revenue-generating business whose primary objective is to achieve a social objective. The social enterprises will have to engage itself in an eligible activity which includes eradicating hunger, poverty, malnutrition and inequality; promoting healthcare, supporting education, employability and livelihoods; gender equality empowerment of women, communities; and supporting incubators of social enterprise. ‘Social Enterprise’ as an enterprise that is engaged in the business of ‘creating positive social impact’.
Types of social enterprises.
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The first is not-for-organizations (NPOs), which have to register on Social stock exchanges with fulfilment of the eligibility conditions specified by the social stock exchange and give disclosures on their social impact. NPOs can raise funds by issuing zero coupons and zero principal instruments. But these NPOs may or may not raise funds in respect of social stock exchanges but have to continue disclosures about their social impact.
The second is a for-profit social enterprise, which means a company that is a body corporate for the purpose of profit only, and this enterprise is not included in the definition of Section 8 of the Companies Act, 2013.
There are eligibility conditions for social enterprise, as below:
As per the above information, the conclusion is that a not-for-profit organization or a not-for-profit social enterprise should be considered a social enterprise and establish the primacy of its social intent.
- A social enterprise must indulge in at least one of the following activities, as below:
- eradicating hunger, poverty, malnutrition, and inequality;
- promoting health care, including mental healthcare, sanitation, and making available safe drinking water;
- promoting education, employability, and livelihoods;
- promoting gender equality, empowerment of women, and LGBTQIA+ communities; (v) ensuring environmental sustainability, addressing climate change, including mitigation and adaptation, and forest and wildlife conservation;
- protection of national heritage, art, and culture; (vii) training to promote rural sports, nationally recognized sports, parlympic sports, and Olympic sports;
- supporting incubators of social enterprises;
- supporting other platforms that strengthen the non-profit ecosystem through fundraising and capacity building;
- promoting livelihoods for rural and urban poor, including enhancing the income of small and marginal farmers and workers in the non-farm sector; (xi) slum area development, affordable housing, and other interventions to build sustainable and resilient cities;
- disaster management, including relief, rehabilitation, and reconstruction activities;
- promotion of financial inclusion;
- facilitating access to land and property assets for disadvantaged communities;
- bridging the digital divide in internet and mobile phone access, addressing issues of misinformation and data protection;
- promoting the welfare of migrants and displaced persons;
- Any other area as may be specified by the board or government of India.
- Target underserved or less privileged population segments by the social enterprise 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 for the target population, to be established through one or more of the following:
- At least 67% of the immediately preceding 3-year average of revenues comes from providing eligible activities to members of the target population;
- 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;
- 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.
- Corporate foundations, political or religious organizations or activities, professional or trade associations, infrastructure, and housing companies, except affordable housing, shall not be eligible to be identified as social enterprises.
Need of Social Stock Exchange
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- The purpose of SSE is mitigating the economic damages which is faced by people during the COVID 19 pandemic and which horrible impact on economy so this will need to rebuild the livelihoods of people and develop the economy.
- Social stock exchanges would help improve visibility and knowledge, among all stakeholders about the contributions of social enterprises to the economy.
- They would also establish procedures to standardize social finance transactions, build awareness about the needs and challenges of this sector and develop social capital.
- These stock exchanges would bridge the funding gap for social enterprises.
- Create the necessary social investment ecosystem for enterprises and investors, whose objective is to generate maximum positive social impact and place environmental, social and governance (ESG) features within the pursuit of profits and growth.
Entities that can participate in SSE (Social stock exchanges)
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Not-for-Organization (NPOs), which are covered by the following entities as below:
- A charitable trust under the Indian Trust Act of 1882
- A charitable trust registered under the public trust
- A Society Registration Act 1860
- Section 8 of the Companies Act 2013
- Any other entities, as may be prescribed by the board
| Broad Parameter |
Indicator | Detail’s |
| Legal Requirements | ||
| Entity is registered as an NPO |
Registration certificate valid at least for next 12 months at the time of seeking registration with SSE |
Entities must be registered in India as one of the below: a. a charitable trust registered under the public trust statue of the relevant state; b. a charitable trust registered under the Societies Registration Act, 1860. c. a charitable trust registered under the Indian Trusts Act, 1882. d. a company incorporated under section 8 of the Companies Act, 2013. |
| Ownership and control |
Governing document (MoA & AoA / Trust Deed / Bye-laws Constitution) |
Disclosure if NPO is owned and/or controlled by government or private |
| Exemption under Income Tax Act |
Registration Certificate under section 12A/12AA/12AB under Income Tax Act, 1961 |
Registration Certificate under section 12A/12AA/12AB to be valid for at least the next 12 months. Does not have a notice or ongoing scrutiny by Income Tax. |
| Registration with Income Tax as an NPO |
IT PAN | Valid IT PAN |
| Age of the NPO | Registration certificate | Minimum 3 years |
| Deduction under Income Tax Act, 1960 |
Valid 80 G registration number Income Tax Act, 1961. |
Entity to ensure whether tax deduction is available or not to investors |
| Eligible to be Social Enterprise |
Requirements with Regulation 292E of ICDR Regulations |
As may be specified by SSE |
| Minimum Fund Flows | ||
| Annual Spending in the past financial year |
Receipts or payments from Audited accounts/ Fund Flow Statement |
Must be at least Rs. 50 lakhs |
| Funding in the past financial year |
Receipts from Audited accounts/ Fund Flow Statement |
Must be at least Rs. 10 lakhs |
Eligible Investor
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Only Institutional Investors and Non- Institutional investors shall have access to the SSE.
There are following investor who is eligible to invest money:
a) The term “Institutional Investor” has been defined in the ICDR regulations to mean:
i. Qualified Institutional Buyer or (QIB)
ii. Family Trust or Intermediaries registered with SEBI, with net worth of Rs. 500 Crores or more, as per the last audited financial statements, for the purposes of listing and / or trading in the Innovators Growth Platform in terms.
b) The term “Non-Institutional Investor” means an investor other than a retail individual investor and Qualified Institutional Buyer.
c) The term “Qualified Institutional Buyer” shall have the meaning assigned to the term in Regulation 2 (1) (ss) of the ICDR regulations.
d) Retail Individual Investors (individual investors who apply or bid for specified securities for a value of not more than Rs. 2 lakhs) are not eligible to have access to the SSE.
e) SEBI may permit other classes of investors, as it deems fit, for the purpose of accessing SSE.
Conclusion: Social stock exchanges will provide a new avenue for social enterprises to raise funds for social initiatives with fulfil the legal requirements. SSE (social stock exchanges) will bring transparency to fund mobilization. Organizations involved in social initiatives will get more visibility and can raise donations in a simple manner. In above information eligible investors can invest in eligible activities.
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Invest in the future and make your money matter. Explore the Social Stock Exchanges and discover how you can be part of the change. Click on the given link to read more: https://ngopilot.in/2024/07/04/social-stock-exchange/
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DISCLAIMER: The information provided in this article is intended for general informational purposes only and is based on the latest guidelines and regulations. While we strive to ensure the accuracy and completeness of the information, it may not reflect the most current legal or regulatory changes. Taxpayers are advised to consult with a qualified tax professional or you may contact to our tax advisor team through call +91-9871990888 or info@semantictaxgen.in.