Sebi allows more charitable entities to raise funds via Social Stock Exchange

New Delhi: Markets regulator Sebi on Friday permitted more charitable entities to raise funds through the Social Stock Exchange (SSE), in a bid to broaden access to the platform.

In its latest circular, the regulator has widened the definition of Not-for-Profit Organizations (NPOs) eligible to list on the SSE.

Under this expanded framework, legal structures such as trusts registered under the Indian Registration Act, 1908, charitable societies registered under the relevant state's Societies Registration Act, and companies registered under section 25 of the erstwhile Companies Act, 1956, will now fall within the definition of NPOs.

To ensure accountability, Sebi has also outlined the reporting requirements for such entities.

In cases where an NPO is registered without listing any security, the Annual Impact Report (AIR) need to be self-reported. This report should highlight the NPO's significant activities, interventions, programmes, or projects during the year, along with an explanation of the methodology used to determine their significance.

Further, Sebi clarified that if an activity, intervention, programme, or project is linked to a listed security, it will automatically qualify as a significant initiative. In such cases, the AIR is required to cover at least 67 per cent of the programme expenditure incurred in the previous financial year.

Also, the regulator has bifurcated annual disclosure requirements into financial and non-financial matters, prescribing separate timelines for each.

Disclosures on general and governance aspects must be made within 60 days of the end of the financial year, while disclosures related to financial aspects must be submitted by October 31 of each year or before the due date of filing income tax returns, whichever is later.

Sebi has further empowered the SSE to specify additional disclosure parameters that NPOs may be required to provide annually.

Moreover, all Social Enterprises that have raised funds through SSE will need to submit a duly assessed AIR by the same October 31 deadline or by the income tax return filing due date. The AIR will also need to be assessed by Social Impact Assessors, with their reports disclosed alongside the NPO's own AIR.

This move follows Sebi's recent amendments to the ICDR (Issue of Capital and Disclosure Requirements) and LODR (Listing Obligations and Disclosure Requirements) norms.

Earlier this month, the regulator replaced the term "social impact assessment firm" with "Social Impact Assessment Organization (SIAO)", signalling a more profession-agnostic approach for such organisations.

Such organisations are required to have at least two Social Impact Assessors in full-time employment for conducting social impact assessment.

Such impact assessors should have experience of at least 3 years in conducting social impact assessment.

These social impact assessors would be mandated to sign the impact assessment report if the SIAO does not have a three-year track record for conducting social impact assessment.

The amendments also require social enterprises to raise funds through the Social Stock Exchange mechanism within a period of two years from its registration on such exchange, failing which its registration will lapse.