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Securities and Exchange Board of India (SEBI) vide it’s Circular dated September 19th, 2022, had come out with Framework on Social Stock Exchange (SSE). Let us have a basic understanding of SSE and how these exchanges will help the social sector in near future.

The purpose of having SSE is to open an additional window for eligible organizations to raise funds to achieve their objectives in a transparent and organized manner. Necessary changes were made in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 218, Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, and Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 to provide a broad framework for Social Stock Exchange. Unlike CSR where funds are earmarked for allowable social spending by corporate houses through their own committees or through eligible organizations, the funds raised through SSE can be spent by Charitable organizations with certain eligibility criteria.

Charitable institutions in the era of the social stock exchange

Not-for-profit organizations (NPO) with the undermentioned eligibility criteria can register with the SSE for raising funds. The conditions are:

  1. A charitable trust registered under the public trust statute of the relevant state.
  2. A charitable trust registered under Societies Registration Act, 1960
  3. A charitable trust registered under the Indian Trust Act, 1882
  4. A company incorporated under section 8 of the Companies Act 2013.

In addition to the above basic requirement, the charitable organization must disclose governing documents like Memorandum of Association, Articles of Association, Governing body, and the ownership details, also Registration certificate issued by Income tax department u/s 12A/12AA/12AB issued under the Income Tax Act, 1961 and must be valid at least for next 12 months and does not have a notice or ongoing scrutiny by Income Tax Department. Must have valid PAN, Minimum 3 years of existence with valid 80G registration, and must fulfil requirements with Regulation 292E of issue of Capital and Disclosure Requirement, 2018.

 

One more condition is that during the immediate previous financial year as per audited accounts receipts must be at least Rs 10 lakhs and spending Rs 50 lakhs.

Once a charitable institution fulfils the above conditions can raise funds by issuing Zero Coupon Zero Principal bonds through the social stock exchange. To raise funds by issuance of Zero Coupon Zero Principal Instruments in terms of Regulation 292K (1) of the ICDR Regulations following disclosures need to be made as clearly as possible for the sake of transparency on the undermentioned facts:

  1. Vision of the organization.
  2. Target Segment of the society.
  3. Strategy formulation to the achievement of goals
  4. Governance, details of the governing body of the organization with ownership, if any, details
  5. Management- Key managerial personnel with the delegation of responsibilities.
  6. Operation: the organization needs to have a physical existence, operational with addresses for inspection/visit purposes.
  7. Finance: Disclosure of the latest three year’s financial statement complying with the guidelines for Not for Profit issued by ICAI.
  8. Compliance: disclosures with respect to compliance with irregularities reported by auditors.
  9. Credibility: Documents like PAN, 12A/12AA/12AB certificate, FCRA certificate and returns, remuneration to governing members.
  10. Social Impact: Details of past social impact in terms of parameters specified in Para D (5) of this circular.
  11. Risks: Expected risks that the management feels can impact on the institution and possible solutions.
 

The above discussion gives us a fair idea about the newly brought changes in raising funds by Not-for-Profit Organizations/Charitable Institutions to overcome financial difficulties and to achieve their objectives with full transparency in their work.


 

Published by

Dilip K Raina
(Consultant)
Category Corporate Law   Report

1 Likes   0 Shares   756 Views

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