BSE issued FAQs on Social Stock Exchange (SSE)

Nov 23, 2022 | by TeamLease RegTech Legal Research Team

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Secretarial ComplianceThe Bombay Stock Exchange (BSE) on November 22, 2022, issued FAQs on Social Stock Exchange (SSE). 

The following FAQS have been stated:

• What is Social Stock Exchange (SSE)?

o Social Stock Exchange (SSE) is a separate segment of the existing Stock Exchange, that can help Social Enterprise(s) to raise funds from the public through the stock exchange mechanism. SSE will act as a medium between Social Enterprises and fund providers and that can help them to select those entities that are creating measurable social impact and reporting such impact. Certain types of Social Enterprises i.e. Not-for-profit organizations (NPOs) that meet the registration criteria (Please see Qs. 9 for details on registration criteria) can register on SSE and undertake to make continuous disclosures on their social impact. Such NPOs may or may not choose to raise funds through SSE, however, would continue to make disclosures including the social impact on stock exchanges.

• Which Social Enterprises are not eligible to get registered or raise funds through Social Stock Exchange/Stock Exchange?

A Social Enterprise shall not be eligible to register or raise funds through Social Stock Exchange/Stock Exchange if –

o any of its promoters, promoter group or directors or selling shareholders ( in case of for-profit social enterprise), or trustees are debarred from accessing the securities market by SEBI

o if any of the promoters or directors or trustees of the Social Enterprise is a promoter or director of any other company or Social Enterprise which has been debarred from accessing the securities market by SEBI;

o if the Social Enterprise or any of its promoters or directors or trustees is a willful defaulter or a fraudulent borrower;

o If Social Enterprise or any of its promoters, directors, or trustees is a willful defaulter or a fraudulent borrower.

o If any of its promoters or directors or trustees is a fugitive economic offender

o if the Social Enterprise or any of its promoters or directors or trustees has been debarred from carrying out its activities or raising funds by the Ministry of Home Affairs or any other ministry of the Central Government or State Government or Charitable Commissioner or any other statutory body

• What is a for-profit social enterprise in the context of a Social Stock Exchange?

A for-profit social enterprise is an entity that meets the criteria to be identified as a social enterprise and is any of the following entities:

o A company under the Companies Act, 2013, operating for profit and does not include a company incorporated under section 8 of the Companies Act, 2013 (18 of 2013);

o A body corporate operating for profit

• Is it mandatory for a Not-for-profit organization to register to raise funds through Social Stock Exchange? 

o Yes, a Not-for-profit organization must register with Social Stock Exchange before it raises funds through Social Stock Exchange. However, a Not-for-profit organization may continue to raise funds through any other means, as permissible under the law, whether it is registered or not with Social Stock Exchange.

• What are the criteria for registration on the Social Stock Exchange in respect of Not-for-profit organizations?

o SEBI vide circular dated September 19, 2022, has prescribed certain minimum requirements for a not-for-profit organization to register on Social Stock Exchange. In brief, these criteria include the mandatory age of NPO as 3 years, valid certificate u/s 12A/12AA/12AB of the Income Tax Act, valid 80G registration, minimum INR 50 lakhs as annual spending and minimum INR 10 lakhs of funds in the past year, etc. Social Stock Exchanges are also permitted to prescribe additional requirements for a not-for-profit organization to register on it.

• Is it mandatory for the Not-for-Profit Organizations registered with Social Stock Exchange to seek listing?

o It is not mandatory for Not-for-Profit Organizations registered with the Social Stock Exchange under regulation 292F of the ICDR Regulations to seek listing, however, it shall mandatorily seek registration with a Social Stock Exchange before it raises funds through a Social Stock Exchange. A Not-for-Profit Organization may choose to register on a Social Stock Exchange and not raise funds through it. It can also continue to raise funds through any other means.

• Is it mandatory to register for-profit social enterprises to raise funds through Social Stock Exchange?

o No, a for-profit social enterprise need not register with Social Stock Exchange before it raises funds through SSE. However, a for-profit social enterprise shall comply with all provisions of ICDR Regulations, and AIF Regulations [as applicable for its fund-raising modes] before it can raise funds through SSE

• Whether retail investors can invest in securities issued by Social Enterprises in the Social Stock Exchange Platform?

o Retail investors are permitted to invest only in securities offered by For-profit social enterprises under the Main Board. In all other cases, only institutional investors and non-institutional investors can invest in securities issued by Social Enterprises. As per SEBI (Issue of capital and disclosure requirements) Regulations, 2018, a retail individual investor applies or bids for specified securities for a value of not more than two lakhs rupees, and a non-institutional investor is separately defined as an investor other than a retail individual investor and qualified institutional buyer

• Can a For-Profit Organization issue Equity Shares to an Alternative Investment Fund?

o Yes. An unlisted For-Profit Organization can issue Equity Shares to an Alternate Investment Fund

• Will I qualify for registration if 67% of my activities last year were in one or more items from the list of eligible activities, by my immediately preceding 3-year average is below 67%?

o No, you are not eligible to apply for registration or listing on the SSE till the 3-year average of your activities is not greater than or equal to 67% of your total activities.

• Will an NPO promoted by the promoters of a body corporate eligible to apply?

o If the NPO is dependent on the corporate for more than 50% of its funding, then it shall not be eligible to apply.

[Notice No. 20221122-49]


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