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JC - Legal Updates - Framework for Social Stock Exchanges introduced

Legal Updates

03 Aug 2022

Framework for Social Stock Exchanges introduced

A framework for the social stock exchange to provide social enterprises with an additional avenue to raise funds has been recently introduced. An overview of the framework is as follows:

1)       Social Stock Exchange:

Social Stock Exchanges (“SSE”) shall be a separate segment of the existing stock exchanges permitted to register and/or list the securities issued by Not for Profit Organizations (“NPOs”) and For Profit Social Enterprises (“FPOs”), collectively called Social Enterprises (“SEs”).

The SEs shall engage in one of the 16 social activities listed by SEBI.

2)       Raising Funds:

(a)      Eligible NPOs can raise funds through:

(i)       issuance of zero coupon, zero principal instruments;

(ii)      mutual funds; and

(iii)     any other subsequent form as stipulated by SEBI.

(b)      FPOs can raise funds through:

(i)       issuance of equity shares on the main board, SME platform or equity shares issued to an alternative investment fund, including social impact fund;

(ii)      issuance of debt securities; and

(iii)     any other subsequent form as stipulated by SEBI.

NPOs desirous of raising funds on the SSE will be required to be registered with the exchange.

3)       Social Impact Funds:

(a)      Social venture funds under the SEBI AIF Regulations have now been replaced with Social Impact Funds which are Alternative Investment Funds which invest primarily in securities, units or partnership interest of social ventures or securities of SEs and which satisfies the social performance norms laid down by the fund.

(b)      The corpus requirements for such funds have been reduced from INR 20 crores to INR 5 crores.

(c)      The minimum value of the investment by an individual investor shall be INR 2 lakhs in case of a social impact fund which invests only in securities of NPOs registered or listed on SSEs.

(d)      The amount of grant that may be accepted by such funds from any person has been reduced to ₹10 lakh from ₹25 lakh.

(e)      The social impact fund or schemes of a social impact fund launched exclusively for an NPO registered or listed on an SSE shall be permitted to deploy or invest 100 per cent of the investable funds in the securities of NPOS registered or listed on an SSE.

To give effect to the above framework, the Securities and Exchange Board of India (“SEBI”) has amended the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 and the SEBI (Alternative Investment Funds) Regulations, 2012 on 25th July 2022.




For any further information, please contact Ms. Apurva Kanvinde (apurva.kanvinde@jclex.com) or Mr. Smit Parekh (smit.parekh@jclex.com).