Background
Hon'ble Finance Minister Smt. Nirmala Sitharaman proposed an electronic fundraising platform "Social Stock Exchange" under the regulatory ambit of SEBI for listing social enterprises and voluntary organizations working for the realization of a social welfare objective so that they can raise capital as equity, debt, or units like a mutual fund in her Budget Speech for FY 2019-20.
1. What is Social Stock Exchange (SSE)?
SSE is a distinct segment of the existing Stock Exchange that can assist Social Enterprise in raising fund from the public via stock exchange mechanism.
SSE will act as a conduit between Social Enterprises and funders, assisting them in identifying and reporting entities that have measurable social impact.
Certain forms of social enterprises, such not-for-profit organisations (NPOs), that satisfy the registration requirements may register on SSE and continuously disclose their social impact.
Such NPOs may or may not choose to raise funds through SSE, but they will continue to make disclosures to stock exchanges.
2. Which entity can identify itself as a social enterprise?
The Social Stock Exchange identifies the two types of social enterprises below that are involved in the business of creating positive social impact and that satisfy the primacy of their social intent.
A. Not-for-profit organisation
B. For-profit social enterprise
3. What is NFO in the context of the Social Stock Exchange?
A not-for-profit organisation is any of the following entities that meets the criteria for being classified as a social enterprise.
- A charitable trust registered under the relevant state public trust statute.
- A charitable society registered under the Societies Registration Act.
- A corporation formed under Section 8 of the Companies Act of 2013.
- Any other entity that SEBI specifies.
4. Can international NPOs can also get registered?
The Social Stock Exchange is only open to Indian entities.
5. Is foreign investors like FIIs, FPIs or NRI investors permit to invest in NPOs fundraising?
Foreign investors like FIIs, FPIs or NRI investors, will not be allowed to invest in NPOs fundraising.
6. What are the ways in which a Not-for-profit organization can raise fund through SSE?
A Not-for-Profit organization after registering with SSE may raise funds.
-Issuance of Zero Coupon Zero Principal Instruments.
-Donations through Mutual Fund Schemes.
7.What are the criteria for registration on SSE in respect of Not-for-profit organizations?
SEBI prescribed certain minimum requirements for a not-for-profit organization to register on Social Stock Exchange. In brief, these criteria include mandatory age of NPO as 3 years, valid certificate Income Tax Act, valid 80G registration, minimum INR 50 lakhs as annual spending and minimum 10 lakhs of fund in the past year.
8. How can a for profit social enterprise raise funds through SSE?
- Issuance of Equity Share (Main Board, SME Platform)
- Issue of Equity Share to an Alternative Investment Fund, including a Social Impact Fund.
- The issuance of debt instruments.
9. Can retail investors purchase securities issued by social enterprises through the platform of the social stock exchange?
Retail investors are permitted to invest solely in securities offered by For-profit social enterprise under the Main Board. In all other circumstances, only institutional investors and non-institutional investors can invest in securities issued by Social Enterprise.
10.Can for-profit organization offer zero-coupon zero-principal instruments to raise money?
No. Zero Coupon Zero Principal Instruments shall be issued only by a NPO registered on a Social Stock Exchange.
11.What minimum subscription is necessary for the successful issuance of Zero Coupon Zero Principal?
The minimum subscription required to be achieved shall be 75% of the funds proposed to be raised through issuance of Zero Coupon Zero Principal Instruments.
12.Are instruments listed by Social Enterprises accessible for trading in secondary market?
The instruments issued by NPO are not available for trading in secondary market. Whereas the instruments issued by FPO are available for trading in secondary market on respective platforms of the Stock Exchanges, on which they are listed.
13.Is the appointment of a merchant banker necessary for the preparation of the draft fund-raising document?
Not required.
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