SEBI releases framework for listing of non-profit firms

Market regulator SEBI (Securities and Exchange Board of India), along the lines of countries like the U.K., Canada and Brazil, has shared a framework for social stock exchange (SSE), which will pave way for the listing of non-profit organisations (NPOs).

To list on the social stock exchange, the NPO must be registered as a non-profit entity, and the registration certificate should be valid for at least the next 12 months at the time of seeking registration with the social stock exchange.

Such entities should be registered in the country as a charitable trust under the public trust statute of the relevant state or a charitable trust under the Societies Registration Act, 1860, or under the Indian Trusts Act, 1882, or as a company incorporated under section 8 of the Companies Act, 2013.

They'll have to disclose if they are government-owned or private. Any IPO needs to have a valid registration certificate for a minimum of three years before applying for listing on SSE.

Their annual spending in the past financial year should be at least ₹50 lakh, with a minimum funding of at least ₹10 lakh in the past financial year.

They should have a valid 80G registration under IncomeTax Act, 1961, an entity will have to ensure whether tax deduction is available or not to investors.

For the minimum initial disclosure requirement for NPOs raising funds via zero coupons and zero principal instruments, SSE will mandate the structure of the draft or final fundraising document. The documents should have minimum disclosures such as vision, target segments, strategy, governance, management, operations, finance, compliance, social impact and risks.

The NPOs will also have to make annual disclosures 60 days from the financial year-end. The disclosures on financial aspects are the balance sheet, income statement, cash statement, auditor report and programme-wise fund utilisation.

All social enterprises will have to provide a duly audited annual impact report (AIR) to SSE 90 days from the end of the financial year. The report will capture the qualitative and quantitative aspects of the social impact generated by the entity or the impact generated by the project for which funds have been raised.

The SEBI circular on a social stock exchange comes days after the market regulator on July 25, 2022, amended rules to provide a broad framework for Social Stock Exchange.

Separately, in a move to boost surveillance of social media and other platforms, the market regulator has invited expression of interest from solution providers to run a 'web intelligence tool' to provide AI-based solutions to extract and analyse "unstructured publicly available data".

According to SEBI, internet usage has risen exponentially over the last few years, which has resulted in the production of an immense amount of unstructured publicly available data on the web. "Unstructured data has the potential to provide deep investigation insights about various entities, individuals, groups and topics related to violations of various securities laws," says SEBI.