Broker Agreement for Share explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Broker Agreement for Share Issue
In a public issue of securities: the company (through the Lead Manager) appoints brokers/syndicate members to: (a) market the issue to investors, (b) collect subscription applications, (c) process bids in the book-building process. The broker agreement governs: (a) the broker's obligations, (b) brokerage/commission rates, (c) compliance with SEBI ICDR Regulations, (d) liability and indemnity.
Key Clauses
1. Appointment: The Company/Lead Manager appoints (SEBI Registration No. ) as a Broker/Syndicate Member for the public issue of equity shares.
2. Broker's Obligations: (a) Market the issue to investors within the broker's network, (b) accept and process application forms/bids, (c) ensure KYC compliance of investors, (d) upload bids on the stock exchange platform (for book-building), (e) handle application money through the designated bank, (f) comply with SEBI ICDR Regulations and ASBA requirements, (g) not make any representation about the issue other than what is in the offer document.
3. Brokerage: The Company shall pay brokerage of % (typically 1-2%) of the subscription amount procured through the Broker. Under Section 40 of the Companies Act: brokerage shall not exceed 2% of the issue price. Brokerage is payable within [30] days of allotment. For retail applications through ASBA: brokerage is typically Rs. 10-20 per application (flat fee).
4. ASBA Compliance: All applications must be through ASBA (Application Supported by Blocked Amount) -- the broker ensures investors apply through their bank's ASBA facility. No physical application forms accepted.
5. Indemnity: The Broker indemnifies the Company against claims arising from the Broker's misrepresentation, unauthorized promises, or non-compliance with SEBI regulations.
6. Confidentiality: The Broker shall maintain confidentiality of all issue-related information until the offer document is made public.
SEBI Requirements
(a) Brokers must be SEBI-registered stock brokers or authorized sub-brokers, (b) all applications through ASBA/UPI -- no cash applications, (c) the broker must upload bids on the exchange platform in real-time during the book-building period, (d) the broker must ensure investors' PAN, demat account, and bank account are valid, (e) brokerage payments are disclosed in the offer document.
Disclaimer: This article is for informational purposes only and does not constitute legal or professional advice. While every effort has been made to ensure accuracy based on the latest laws and amendments, readers should consult a qualified professional before acting on any information provided. For expert assistance, contact us.
Key Facts About Broker Agreement for Share
- Applies in: All states across India, under the relevant central law.
- Mode: Mostly online via the official government portal.
- Typical timeline: Ranges from a few days to a few weeks depending on the case.
- Non-compliance: May attract penalties, interest or late fees.
- Expert help: TaxClue completes the entire process end to end for you.
What is the maximum brokerage for share issue?
Under Section 40 Companies Act: brokerage for share issue shall NOT exceed 2% of the issue price. For debentures: maximum 2.5%. In practice: brokerage is typically 1-1.5% for institutional investors and Rs. 10-20 per application for retail ASBA applications. Brokerage is payable only on SUCCESSFUL applications -- not on withdrawn or rejected bids. The brokerage amount is disclosed in the offer document (DRHP/RHP).
What is ASBA and why is it mandatory?
ASBA (Application Supported by Blocked Amount) is the system where the investor's application money is BLOCKED in their bank account (not transferred to the company) until allotment. If allotted: only the allotment amount is debited. If not allotted: the block is released. SEBI has made ASBA mandatory for ALL public issues -- no physical forms or cheque-based applications are accepted. Benefits: (1) investor's money earns interest during the issue period, (2) faster refunds (no refund needed -- just unblock), (3) reduced fraud risk.
Over 90% of compliance penalties in India arise from missed due dates — timely handling can save businesses thousands of rupees each year.
Broker Agreement for Share: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.
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Why This Matters
Staying compliant with Indian regulations protects your business from penalties, interest and unnecessary legal trouble.