A guide to start a stock Sub-Broker Business

ENTREPRENEUR!!!!!  How many of us dream of starting their own business, and being the BOSS of themselves. Some start their own Business due to their Passion, some due to ability to generate extra ordinary profit, and some to kill their dull days after retirement and earn while doing so!!! I am just discussing here the practical aspects of running a Sub-Broker Business.

Sub-Broker means any person who is not a member of a stock exchange but who transacts on behalf stock-broker as his agent or buys, sells or deals in securities for investors through such stock-brokers;

Having a business as Stock sub-Broker is really one of best business at any stage of your Life. Well the overall business of Sub-Brokers goes like this:

The above picture just gives the Front view how Business works. Let’s discuss that it from scratch, and we will be discussing who can Start this Business, What is the capital requirement, what are the statutory and other formalities to start, and Some Tips.

1.  Who Can start Sub-Broking Business: 

 Well anyone who wants to start it. But these basic skills are desired:

·      Should have passed at least 10+2,

·      Should be financially sound,

·      Should have the knowledge of Finance Market, PHD in Economics is not required, but he should be able to understand and manage the basic Finance transactions,

·      Should be equipped with latest information related to Economic, Politic and Environment scenario. Every information may not be interesting news, but every information affects the Stock Market,

·      Should have the knowledge of Computers, not the skill of Engineer but just basic knowledge would do. Nowadays computers are used in almost all Business; however stock brokers were the one of the first to use it to transact the Broking business,

·      Should have good communication Skill, and remember Customer Is God. Value your customers, Stock broking is highly competitive business,

·      Should have good management skills, after all every business after a point is all about good management of Money, Man, Market and all other resources.

Anyhow if you don’t have above qualities hire who has them.

2.  What is the capital requirement to start Sub-Broker Business?

This is the point which matters most for all Entrepreneurs, after all money is the most critical constraint of every business, we will try to summaries the basic practical requirement and rough estimation of Investment required for those requirements in below Table:

Requirement	Investment Required	Frequency	Type of Investment	Remark
Registration with Ministry Of Corporate Affairs	18,500 - ~	One Time	Capital Investment	Depends on the Fees of Chartered Accountant, you selected. However minimum cost will be around 8,000 and fluctuate as per stamp duty of states. (Refer point 3 below)
Initial Deposit With Main Broker	25,000-1,50,000	One Time	Capital Investment	This depends on Broker with whose sub-broker ship you take and on your Bargaining skill.
Computers, workstations and Television	50,000-1,50,000	One Time	Capital Investment	Unavoidable expense and again depends on the configuration of computer you purchase.
Fixed Deposit with Tenant	50,000-2,50,000	One Time	Refundable Investment	Depends on the City you choose, and size of your office.
Isdn/Vsat Connection	50,000-2,00,000	One Time	Capital Investment	Little Technical words, these are the high Speed internet Connections. Again cost depends on level of service required and your skill of influencing sales guy of service provider!!
Monthly Rent of Office	5,000 – 50,000	Monthly	Working Capital	Depends on Size and location of your Offices.
Salary to Staff – 2 employees	10,000 – 30,000	Monthly	Working capital	Depends on the city and skill of employees you took, however in beginning it may be avoidable.
Internet charges, TV set bill, Telephone Bills, Electricity Bills etc.	5,000-15,000	Monthly	Working Capital	Depends on the Usage of various facilities.

3.  What are the statutory and other formalities to start Sub-Broker Business?

It depends on how you would like to carry the business, well if you are aggressive and this is not the only business you would carry, a Company would be a better option. But if you are a non-aggressive and happy with the passive returns you targeted, conducting business in your name would be enough. As said at beginning of article it’s going to be about practical aspect, I cannot predict the cost of Government Registrations till LokPal is effectively implemented. 

If you with company, company must be registered with MINISTRY OF CORPORATE AFFAIRS (Extra cost of 18500~), for doing business on individual name, no such registration is required. However I recommend going with a company, as it has a benefit of limited Liability.

Depending on the state of operation you may have to register for Profession Tax. However service Tax Registration is not required currently for Sub-Brokers, as it is explicitly kept out of preview of Service tax Liability.

Registration under Shops and Establishment Act would be required, and if you got a Logo or trademark for your business than Registration is required for that too. However these are all small registration and appoint a consultant who can take care of all these.

4.  Some Tips for Sub-Broking Business:

 If you are already managing a business, I don’t think managing sub-brokerage business would be a much difficult task for you. However I recommend below 2 tips to young and inexperienced entrepreneurs:

·          

o  Do not encourage the bad traders to trade, it may give you good brokerage but it will affect your Goodwill in long run.

o  No hidden Charges please, do not charge anything extra to your clients other than agreed; if clients notice them I don’t think client will give you even a chance to explain. Client will just transfer his account to other Sub-Broker. After all it’s all about Reliability.

o  Choose a good Stock Broker to take the agency some of the Big names in Market today are Sharekhan, Motilaloswal, Indiabulls Securities, and Angel Broking etc. But being big does not mean being good.

Hope this article would serve some useful purpose, and it would be my pleasure to help you out any of your venture. And if you think article has any mistake or wrong information or any information is left out please update it.

And do write if you have experience in this business and which stock-broker you think is best to take the sub-broker agency.