Details of a Not-Profit Organization in the Context of Social Stock Exchanges

The Meaning of a not-for-profit organization

Firstly, a not-for-profit organization has to register with a social stock exchange, and not-for-profit organizations not only get registered, but they can also raise funds through a social stock exchange. Which have to register on SSE 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.

Not-for-Profit Organizations in the respect of Social Stock Exchanges

 

A NPO is an entity that meets the criteria to become a social enterprise and follows all the rules and regulations that are prescribed by the SSE.

1. a charitable trust registered under the public trust statute of the relevant state;
2. A charitable society registered under the Societies Registration Act, 1860
3. A company incorporated under Section 8 of the Companies Act, 2013
4. Any other entity as may be specified by SEBI;

Eligibility criteria for registration on the Social Stock Exchange in respect of not-for-profit organizations

SEBI has prescribed certain minimum requirements in order for a not-for-profit organization to register on the Social Stock Exchange. In brief, these criteria include the mandatory age of the NPO as 3 years, a valid certificate u/s 12A/12AA/12AB of the Income Tax Act, a valid 80G registration, and there should be a minimum annual spending amount of 50 lakhs and 10 lakhs should be funded in the past year, etc.

Means of Raising Funds by Social Enterprises

After registering with social stock exchange may raise funds on social stock exchange by Not for Profit Organization through:

1. Issuance of Zero Coupon Zero Principal Instruments for specific projects or activities that should be completed within the duration specified in the fundraising document, and there is some specific project or activity that is under the list of eligible activities.
2. Donations through mutual fund schemes.
3. Any other board-specified means.

However, a not-for-profit organization may continue to raise funds through any other means as permitted under the law, whether it is registered or not with the social stock exchange.

Through social stock exchange mechanisms, not-for-profit organizations can access a structured finance product.

One type of structured finance product that is available on SSE is DIB as in the definition below:

Development Impact Bonds: These are structured finance products where, upon completion of a project that meets pre-agreed social metrics at pre-agreed rates, the service provider of the project receives grants from the donor, who is called the “outcome funders.”

A DIB structure’s fundamental tenet is that a NPO receives funding upon meeting predetermined social criteria at predetermined rates and costs and grants is made to an NPO after it delivers on pre-agreed social metrics. The donor who makes the grant when the social metrics are achieved is termed an “outcome funder.” Given that the outcome funder makes the payment on a post facto basis, the NPO needs to raise funds to finance its operations. Such a funder is termed a ‘’Risk Funder’’. A risk funder not only enables financing of operations on a pre-payment basis but also undertakes the risk of non-delivery of social metrics by the NPO. To compensate for this risk, a risk funder typically earns a small return if the social metrics are delivered.

Disclosure Norms:

1. Not-For-Profit Organizations

• First, it has to give annual disclosure on the general aspects, governance aspects, and financial aspects within 60 days from the end of the financial year or within the board period as may be specified.

• They have to submit a statement of utilization of funds on a quarterly basis within 45 days from the end of the quarter.

• A listed NPO has to submit a statement on a quarterly basis regarding amounts raised, amounts utilized, and the balance remaining that is unutilized to the SSE.

• The unutilized amount shall be kept in a separate account.

• The said quarterly statement shall be furnished to the SSE till the proceeds have been fully utilized or the purpose for which they were raised has been achieved.

Guidance Notes for NPOs on Disclosures of General, Governance, and Financial Aspects.

 

General disclosures

• Name of the Organization
• Location of operations
• Vision/mission/purpose
• Organizational goals, activities, products, and services
• Outreach of the organization
• Scale of operations
• Top donors or investors in the organization

Governance Disclosures

• Ownership and Legal Form
• Governance Structure
• Details of the governing body, including the names of the members of the body
• Executives with key responsibilities
• Organization-level potential risks and mitigation plan
• Reporting of related-party transactions
• Remuneration policies
• Organization registration certificate and other licenses and certifications (12A, 80G, FCRA, GST, etc.)

Financial Disclosures

• Financial Statement (balance sheet, income statement, cash statement)
• Auditors Report and Details of the Auditors 

Conclusion: Non-profits organizations serve the public, providing a wide range of services to improve the quality of life of individuals or communities. They are raising funds for SSE for the purpose of social objectives, following the eligibility criteria, and giving disclosure to SSE.

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.