Which License is Required to Start a Stock Broker Firm

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Which License is Required to Start a Stock Broker Firm

A Stock Broker Firm is a business engaged in providing stock brokerage services to individuals and business entities. It acts as an intermediary to facilitate buying and selling of securities on behalf of its clients. In this blog post, we shall discuss which license is required to start a stock brokerage firm in India. 

Why Start a Stock Broker Firm?

Nowadays, trading and investing in securities like stocks, bonds and mutual funds has become common. However, not every individual or business entity has the expertise or time required to trade and invest on their own. 

By starting a stock brokerage firm, you can assist those who want to invest/trade by buying and selling securities on their behalf. You can make profit by charging either a flat brokerage fee per trade or a commission based on the value of the transactions, or a combination of both.

Who can Start a Stock Brokerage Firm in India?

Individuals who are desirous of setting up a brokerage firm need to fulfill the following eligibility criteria:

• They must have completed 10+2 education.

• Need to be at least 21 years old.

• Must possess a bachelor’s degree, preferably in a finance-related background

• Must have preferably received training in one of the specialized sectors of finance, economics or business administration.

• A postgraduate degree in business administration (like MBA in Finance), economics or commerce, to become better equipped to operate the brokerage firm, would be preferred.

• 2 years of experience working for a stockbroking firm upon completion of graduation.

Licenses and Certificates Required to Start a Stock Broker Company

To start a stock brokerage company in India, you need the following licenses and certifications:

1. Company Registration Certificate

To start a stockbroker company in India, one of the key requirements is company registration. First, you must decide the type of business model you want for your company from the available options like public limited company, private limited company, one person company, etc. 

Once you decide on the business model, you must file a company incorporation application using the prescribed form through the MCA portal. Make sure you enter all the required details in the form in an accurate manner. Also, attach all the necessary documents with the application, including Memorandum of Association and Articles of Association. These documents must contain specific clauses that define the company's purpose, operations as a stockbroker firm, and rules to govern internal management.

Once the application and documents are ready, you must file them online on the MCA portal by paying the prescribed application fee. Once the application is filed, it’ll be reviewed and verified by the Registrar of Companies (ROC). If the authority is satisfied with the application, it’ll give its approval for incorporation of the company and register the company with MCA. Also, it’ll issue a certificate of incorporation in the company’s name, implying that the company is legally registered in India.

2. Certificate of Commencement of Business

The certificate of business commencement is an essential requirement to commence business operations in India. This certificate is issued by the Registrar of Companies (ROC) and must be obtained by a company within 180 days of incorporation. 

To secure the business commencement certificate, you must file form INC 29-A with ROC. In this form, you must mention necessary details like corporate identification number (CIN), company name, registered office address, etc. 

Once the form is successfully filed, it’ll be verified by ROC. If the ROC is satisfied with the application, it’ll issue a certificate of commencement of business to your stockbroker company.  

3. Stock Broker License

The Securities and Exchange Board of India (SEBI) issues the Stock Broker License to individuals and entities that want to provide stock brokerage services in India. To become a SEBI-registered broker, first, you need to meet the eligibility criteria. Then, you need to file an application using Form A found in Schedule I with the stock exchange where you wish to be admitted as a member. 

The stock exchange will then forward the application to SEBI within 30 days of receiving the application. After this, SEBI will review it. If satisfied with the application, it’ll issue a stockbroker license, a.k.a certificate of registration, to you and intimate the stock exchange about the same.

4. GST Registration Certificate

GST registration is mandatory for a business if its annual turnover exceeds Rs. 40 lakhs (for goods) and Rs. 20 lakhs (for services). To apply for this registration, you need to visit the official GST portal and register there. 

Once you have registered under the GST regime, you will receive a GST registration certificate, containing Goods and Services Tax Identification Number (GSTIN).

Types of Brokerage Firms in India

There are different types of broker firms in India, each with its unique characteristics.

• Full Service Broker Firms: These stockbrokers offer a wide range of services to clients like advisory services, market research and analysis, investment strategies, etc. They facilitate investors in gaining insights regarding investment opportunities. Generally, their brokerage fees depend on the total amount of executed transactions. Full service brokers are usually market players with a national presence and have a wide network via offices and branches spread across the country. 

• Discount Broker Firms: Compared to full service brokers, the discount brokers charge lower fees. However, the discount brokers don’t offer advisory services or market research like full service brokers do. Also, they generally charge flat brokerage fees for stock market trades.

• Online Brokers: These firms offer a combination of full-service and discount stockbrokers. They offer online services and charge a flat rate brokerage fee.

Conclusion

To run a stock brokerage firm in India, you need to obtain a stockbroker license from the Securities and Exchange Board of India. Additionally, you need to obtain a certificate of incorporation and a certificate of commencement of business from ROC, and GST registration from the GST office. For assistance in opening a stockbroker firm in India, connect with Registrationwala’s experts. We’ll help you obtain all the necessary approvals in a smooth and hassle free manner.

Frequently Asked Questions (FAQs)

Q1. Which authority issues the stockbroker license in India?

A. The Securities and Exchange Board of India (SEBI) issues the stockbroker license in India.

Q2. Which regulations govern the activities of stockbrokers in India?

A. The Securities and Exchange Board of India (SEBI) Stock Brokers Regulations 1992 govern the activities of stockbrokers in India.

Q3. What are the different types of brokerage firms in India?

A. The different types of brokerage firms in India include full-service brokerage firms, discount brokerage firms and online brokers.

Q4. How does a stockbroker make money?

A. A stockbroker makes money through commissions and brokerage charges for buying and selling securities on behalf of clients. 

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