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 [Broker Name] (SEBI Registration No. [Number]) as a Broker/Syndicate Member for the public issue of [Number] 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 [X]% (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.
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❓ Frequently Asked Questions
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.
Who can act as a broker for public issue?
Only SEBI-registered entities: (1) STOCK BROKERS registered with SEBI and members of BSE/NSE, (2) SYNDICATE MEMBERS appointed by the Lead Manager for book-building, (3) AUTHORIZED INTERMEDIARIES -- banks (for ASBA), depository participants. Unregistered individuals or firms CANNOT act as brokers for public issues. The broker must have adequate infrastructure for: accepting applications, uploading bids, processing payments, and maintaining records as per SEBI requirements.
How is brokerage disclosed?
Brokerage is disclosed in the OFFER DOCUMENT (DRHP/RHP) under the section 'Issue-Related Expenses.' The disclosure includes: (1) total estimated brokerage amount, (2) brokerage as a PERCENTAGE of the issue size, (3) breakdown by: broker category (institutional/retail), (4) payment terms. Additionally: the LEAD MANAGER's fee, underwriting commission, registrar's fee, and other issue expenses are disclosed. Total issue expenses typically range from 3-7% of the issue size -- brokerage is one component.
What happens if a broker makes unauthorized promises?
If a broker makes representations NOT in the offer document (promising guaranteed returns, minimum listing price, assured allotment): (1) the broker is liable to SEBI ACTION -- suspension/cancellation of registration, penalty, (2) the investor can claim DAMAGES from the broker (not the company -- the company's liability is limited to the offer document), (3) the Company/Lead Manager can TERMINATE the broker's appointment, (4) the indemnity clause requires the broker to compensate the Company for any loss. SEBI takes unauthorized promises very seriously -- it constitutes market manipulation/fraud.
