In the last article, we discussed the Social Stock Exchange: objectives, benefits, History, Global Scenario and Social Enterprise.
Now, let’s understand about registration requirements and fund-raising instruments.
Registration
- Non-profit organisations eligibility criteria for registration
Once the “Primary of Social Intent” requirements have been met, further below are the eligibility criteria-
- Entities must be registered as Trust or Society or Section 8 Company under respective acts (Certificate to be Valid for further period of 12 months at the time of seeking registration)
- Governing document of the NPO seeking registration (MoA& AoA/ Trust Deed/ Byelaws/ Constitution, as the case may be)
- Registration Certificate under section 12A/12AA/12AB under Income Tax Act, 1961. The registration certificate should be valid for at least next 12 months from date of application. Does not have a notice or ongoing scrutiny by Income Tax
- Valid 80G registration under Income Tax Act
- Valid IT PAN
- NGO Darpan ID
- Track record of last 3 years
- Minimum fund flows: The annual spending by an NPO as per the audited financial statements for the past financial year should be at least INR50 lakh. Additionally, the annual funding received by such an NPO as per the audited accounts should be at least INR10 lakh.
Additional documentation requirements for registration to be checked on BSE & NSE Social stock exchange from time to time.
- For Profit Enterprises eligibility criteria for registration
FPEs may list their securities on the appropriate existing stock exchanges:
- Debt securities may be listed on the main board,
- Equity securities may be listed on the main board or Small and Medium Enterprise (SME) Platform or Innovators Growth Platform (IGP)
Financing instruments for NPOs to raise the funds:
- A Not for Profit Organization may raise funds on a Social Stock Exchange (SSE) through:
- issuance of Zero Coupon Zero Principal (ZCZP) Instruments to institutional investors and/or non-institutional investors as per SEBI (ICDR) Regulations, 2018
- donations through Mutual Fund schemes as specified by SEBI
- any other means as specified by SEBI from time to time
Zero Coupon Zero Principal (ZCZP) Instrument
Zero Coupon Zero Principal Instruments shall be issued only by a Not for Profit Organization registered on a Social Stock Exchange and shall have a specific tenure.
Zero Coupon Zero Principal Instruments shall be issued without any coupon and no principal amount shall be payable on its maturity.
- ZCZPs shall be issued by an NPO for specific social development projects/activities.
- The ZCZPs shall be issued only for a specific project or activity that are listed under SEBI (ICDR) Regulations.
- Zero Coupon Zero Principal Instruments shall be issued in dematerialized form only.
- As per SEBI (ICDR) Regulations, NPOs shall issue ZCZP Instruments to:
Public through a Public Issue; or Social Impact Funds registered under SEBI (AIF) Regulations through a Private Issue.
- An NPO shall need to show expertise in the targeted areas through social performance of past projects which in turn allow investors to gain greater insight into the NPO’s activities.
- Minimum issue size: Rs. 1 crore
- Minimum application size: Rs. 2 lakhs
- Minimum subscription: 75% of the funds proposed to be raised through issuance of ZCZP instruments.
- In case of any under subscription, the Not for Profit Organization shall, in the fund raising document, provide details on the following:
(a) manner of raising balance capital in case of such under subscription between 75% and 100%;
(b) possible impact on achieving the social objective(s) in case such under subscription is not arranged. Provided that the funds shall be refunded in case the subscription is less than 75% of the issue size
Termination of listing of Zero Coupon Zero Principal Instruments from the Social Stock Exchange-
The Social Stock Exchange shall terminate in the following events:
(a) The object for which the funds were raised has been achieved and a certificate to this effect is submitted to the Social Stock Exchange; or
(b) The tenure to achieve the object for which the funds were raised as provided in the fund raising document has expired.
Equity or Debt
- A section 8 company may choose to raise funds on SSE by issuing equity or debt instruments.
- The existing provisions applicable for other body corporates shall continue to apply for such issuances.
- The Section 8 Company wishing to list equity shall need to show its track record through social performance of past projects/ activities undertaken by them as well as through differentiators that will allow investors to gain greater insight into the company’s activities.
- A For Profit Social Enterprise may raise funds through:
- issuance of equity shares on the main board, SME platform or Innovators Growth Platform or equity shares issued to an Alternative Investment Fund including a Social Impact Fund;
- issuance of debt securities;
- any other means as specified by SEBI from time to time
Retail investors can only invest in securities offered by for-profit social enterprises (SEs) under the Main Board. Retail Individual Investors means an individual investor who applies or bids for specified securities for a value of not more than INR 2 lakhs.
Equity and Debt
The FPE wishing to list equity or debt needs to show its track record through social performance that will allow investors to gain greater insight into the FPE’s activities.
FPEs listing equity/ debt shall comply with the disclosure requirements as per the applicable segment such as main board, SME, IGP, etc.
Social Impact Fund / Development Impact Bonds
Social Impact Funds (SIFs) issued by AIFs can invest 75% of their investable funds in unlisted securities or partnership interest of social ventures or in units of social ventures or in securities of social enterprises. The remaining investable funds to be invested in securities of NPOs with prior consent of at least 75% of the investors by value of their investment.
These funds may accept grants which need to be only utilised in the above manner. Issuers need to show the impact areas and other relevant metrics such as impact expected and the expertise of the aggregator and other stakeholders in managing such projects. Any query, we can help you.
