Social enterprise
Also written SE · Social Enterprise (SE)
An organisation, non-profit or for-profit, that exists primarily to create social impact; under SEBI ICDR it is either an NPO or a For Profit Social Enterprise that has established primacy of social intent.
In plain language
A social enterprise uses the tools of business to fix a social or green problem. Those tools include enterprise, new ideas, market methods and discipline.
The workbook lists three things they share:
- Social purpose. It is set up to do social good by tackling a social issue.
- Enterprise approach. It uses business rules and the planning discipline of a profit-making firm.
- Social ownership. It focuses on the public good and on looking after it. This need not show in its legal form.
The core belief is simple. Profit and social impact do not rule each other out. Each makes the other stronger. The workbook names five early Indian examples: SELCO Solar, Basix, Barefoot College, Arvind Eye Hospital and Pratham.
For the Social Stock Exchange, the everyday meaning is not enough. SEBI's ICDR Regulations say exactly who counts. A social enterprise must be one of two types. It is either a Not for Profit Organisation or a For Profit Social Enterprise. Either way, it must first establish primacy of social intent. That means it must show its social aim comes first. Only then is it treated as a social enterprise.
How it works
Two routes into the definition (ICDR, Chapter X-A):
| Not for Profit Organisation | For Profit Social Enterprise | |
|---|---|---|
| Legal form | Charitable trust, charitable society, Section 8 company, or other entity SEBI specifies | A company or body corporate operating for profit — not a Section 8 company |
| Social intent test | Eligible activity + target population | Eligible activity + target population + 67% predominance test |
| Main SSE instrument | Zero Coupon Zero Principal instrument | Equity or debt on the main board, SME platform or IGP |
Eligibility under Regulation 292E, which applies to both:
- engage in at least one of the 18 listed activities, such as eradicating hunger, promoting healthcare, education, gender equality, environmental sustainability, financial inclusion or bridging the digital divide;
- target underserved or less privileged population segments, or regions recording lower performance in central or state development priorities;
- for an FPSE only, at least 67% of activities qualifying, measured by revenue, expenditure or customer base over the preceding 3-year average.
Who can never qualify: corporate foundations, political or religious organisations or activities, professional or trade associations, and infrastructure and housing companies except affordable housing.
Non-profit vs social enterprise. Chapter 1 draws a sharp line. Non-profits rely on donations and grants. Social enterprises generate their own revenue for financial sustainability, and plough all profits back into the cause.
A worked example
Illustrative organisations.
| Organisation | What it does | Social enterprise under ICDR? |
|---|---|---|
| Netra Jyoti Trust, Madurai | Free cataract camps in tribal blocks | Yes — as an NPO. A charitable trust doing an eligible activity (healthcare) for an underserved population. |
| Roshni Solar Pvt Ltd, Patna | Sells solar lamps; ₹14 crore of its ₹18 crore 3-year average revenue comes from off-grid villages | Yes — as an FPSE. 14 ÷ 18 = 77.8%, above the 67% threshold. |
| Vistara Foundation | The CSR arm of a listed cement company | No. Corporate foundations are excluded, whatever the quality of their work. |
| Metro Infra Ltd | Builds toll roads | No. Infrastructure companies are excluded. |
| Ghar Apna Housing Ltd | Builds low-cost flats for slum households | Can qualify — affordable housing is the stated exception. |
Roshni Solar is the interesting case. It makes a profit and pays dividends, which a Section 8 company could not. It is still a social enterprise because more than two-thirds of its business serves the target population. Had that share been ₹11 crore out of ₹18 crore (61.1%), it would be an ordinary company, however socially minded its founders.
Why NISM asks about it
Chapter 1 (10%) introduces social enterprises, their characteristics and the ICDR eligibility criteria. Chapter 3 (6%) turns those criteria into the SSE onboarding test, and Chapter 9 sets out what a social enterprise must disclose once registered or listed. Chapter 1's sample questions include a fill-in on what a social enterprise must establish — primacy of social intent. Expect questions on the excluded categories, the 67% test being FPSE-only, and the difference between a non-profit and a social enterprise.
Common exam traps
- A Section 8 company is an NPO, not an FPSE. The ICDR definition of FPSE expressly excludes it, even though it is a company.
- The 67% test applies only to FPSEs. An NPO proves primacy through its activities and its target population alone.
- Corporate foundations are excluded — a common wrong answer because they do social work.
- Affordable housing is the exception, not housing in general.
- The workbook words the housing exclusion two ways. Chapter 1 says "infrastructure and housing companies, except affordable housing". Chapter 3 (3.1.1(e)) says "infrastructure and housing finance Companies, except affordable housing". Recognise either.
- "Social enterprises cannot make profits" — wrong. They make profits and reinvest them; the Chapter 1 contrast with non-profits is about the source of funding.
- Social enterprises can access social venture capital funds, not only grants and donations. Chapter 1 says this of both for-profit and non-profit social enterprises.
Check yourself
1.To be identified as a social enterprise, a Not for Profit Organisation or a For Profit Social Enterprise shall establish primacy of _____.
- a)social intent
- b)social outcome
- c)social impact
- d)social activity
Show the answer
Answer: (a) social intent
Regulation 292E of the SEBI ICDR Regulations requires an NPO or FPSE to establish primacy of social intent.
"Social impact" is a tempting distractor because the workbook also uses the phrase "primacy of social intent/impact" as a heading — but the regulation's wording is social intent. Outcomes and activities are parts of the results chain, not the eligibility test.
2.For fund raising through the Social Stock Exchange, a social enterprise needs to fulfil which of the following conditions? (i) Establish the primacy intent of social impact (ii) Focus on underserved or underprivileged populations
- a)Only (i)
- b)Only (ii)
- c)Both (i) and (ii)
- d)None of these
Show the answer
Answer: (c) Both (i) and (ii)
Both are prior conditions listed in the eligibility requirements. A social enterprise must establish the primacy of social impact and its activities must focus on underserved or underprivileged populations or lagging regions.
Options A and B each leave out a mandatory condition, and D ignores both.
3.Under Regulation 91(D) of the SEBI LODR Regulations, a Social Enterprise must disclose an event that may have a material impact on planned outputs or outcomes not later than:
- a)24 hours from the event
- b)Seven days from the event
- c)30 days from the event
- d)60 days from the end of the financial year
Show the answer
Answer: (b) Seven days from the event
The disclosure must be made as soon as reasonably possible but not later than seven days from the occurrence of the event (or such period as SEBI specifies).
60 days is the deadline for NPO non-financial annual disclosures, not for events. 24 hours and 30 days do not appear in this chapter.
Where this is taught
Free preparation for NISM Series XXIIIRelated terms
- Social Stock ExchangeA separate segment of a recognised stock exchange on which Not for Profit Organisations and For Profit Social Enterprises register and list securities to raise money for social impact, under SEBI rules.
- For Profit Social EnterpriseA company or body corporate operating for profit (not a Section 8 company) that qualifies as a social enterprise, including the 67% test, and lists securities with an identifier marking it as such.
- Not for Profit OrganisationA social enterprise that is a charitable trust, charitable society or Section 8 company (or other entity SEBI specifies); it can register on an SSE and raise money mainly through ZCZP instruments.
- Predominance testThe FPSE-only eligibility test: at least 67% of activities must serve the target population, shown by revenue, expenditure or customer base averaged over the preceding 3 years.
- Primacy of social intentThe ICDR condition every social enterprise must establish before using an SSE: an eligible social activity, an underserved target population and, for an FPSE, at least 67% of activities qualifying.
- Target populationUnder ICDR Regulation 292E, the underserved or less privileged population segments, or lagging regions, that a social enterprise must serve to establish primacy of social intent.
- Social VentureA trust, society, company, venture capital undertaking or LLP formed to promote social welfare, solve social problems or provide social benefits — the class of entity a Social Impact Fund invests in.
- Aspirational Districts ProgrammeA NITI Aayog scheme launched in 2018 that ranks 112 underperforming Indian districts monthly on health, education, agriculture, financial inclusion and infrastructure to speed up development.
- Digital divideThe OECD-defined gap between people, households, businesses and regions in their access to, and use of, information and communication technologies — a barrier social enterprises work to close.
- ShramdaanIndia's tradition of voluntary community labour, cited by the workbook as the root of the country's civil-society ethos since Independence — the cultural precursor to today's regulated social sector.
- Social capitalThe OECD and World Bank concept of networks, shared norms and trust that let people cooperate — one of four things the workbook says every social enterprise builds through its social intent.
- Section 8 companyA company incorporated under Section 8 of the Companies Act, 2013 to promote charitable objects, applying its profits only to those objects — one of three legal forms, alongside a Trust and a Society, an NPO can take.
- Social sectorIndia's non-profit or third sector — NGOs, NPOs, Section 8 companies and social enterprises working on human development areas like education, health and sanitation, distinct from government and for-profit business.