From what I can understand is that , it’s another venture and lot easier from tax perspective and an opportunity to create another passive income stream / bussiness using trading income.
Say for example:-
You trade make like 1cr to 2.5 cr+
You want to make YouTube videos earn from views or run a insta page to be influencer earn from brands(finance with sharan for example). You want to use above trading income here.
You want to open a petrol bunk or do some other passive bussiness like a shop or create or sell some product but the capital required needs to come from trading income.
It’s a lot easier to do all this under a company. You can channel your active trading income to other places easily and pay no tax on your trading income alone. The benefit here is your business is diversified better security multiple income streams.
Now if you tried to do this without a company as Jason says AO might reject your balancesheet (I mean using your trading income for other ventures) suspecting that as personal expenses. With a company I kinda believe they have clear vision , mission so AO most likely wouldn’t question.
So from my understanding private company is best if we want to use trading income for other Ventures without paying tax on trading income. (Not sure here, I heard MAT is there)
Partnership firm? Above 50lakhs per account. If I merge all accounts and form a partnership I will pay remuneration to partners until 50 lakhs. Remaining profit will be taxed at 30 percent in the firm.
No. It’s still the same. Income from trading will be taxable. The application of that income is irrelevant for income tax.
Okay for some reason let’s say having a separate entity is better. Even then why not a partnership firm? Why do you want to a private limited company? Whatever you have mentioned in the examples whether beneficial or not(not something we should argue on in this topic), can be done by a separate firm.
Even if NBFC registration was not required, and even if one is an expert in handling others money, it’s not easy to keep adding shareholders.
Every time one wants to add a shareholder there are resolutions and compliances. For private placements, merchant banker valuation would be required in addition to a lot of work for the CS. All this comes to around 1lakh every time a new shareholder is to be added.
I know you have mentioned it many times it’s better to not manage others money, but even if they still want to do it why not just go for a partnership firm instead of crying over here saying SEBI is not fair to retailers and so on.
I wanna know what benefit they see which I don’t or we should just tell them it’s not worth all the pain.
Ah no. If you are an alpha member, you have to trade through yourself. You have to set up the tech and infra and everything we do yourself. It is much easier business in terms of compliance and operations if you are not dealing with customers and trading only for yourself.
Just to clarify, with Alpha you cannot onboard customers. You can only trade for shareholders and family members as per IT Act of shareholders.
That said, yes its actually possible for one broker to trade via another technically as per regulation - but not sure if there is much of a precedence in retail market.
The best way to get started trading on behalf of customers is to get a AP from a broker and maintain your compliances in terms of recorded pre-trade confirmation. However, in market - most of the frauds are committed by APs as they often tend to gaurentee returns and brokers find it very hard to manage AP. Most brokers are now shying away from onboarding new APs - but lots still do.
To correct you, no type of membership or being an AP allows you to trade on behalf of another person. Even as an alpha member, you can only trade for the prop, that is, the brokerage firm itself. An alpha membership doesn’t give a license to trade on behalf of the shareholder. Of course, the shareholder’s capital in the brokerage firm can be used.
As an AP or a broker, you can trade on behalf only if the customers explicitly ask you (broker - normal or alpha, or AP) to buy or sell something. To manage others’ money, you need to be a PMS, AIF, or Mutual fund. I have explained this here.
@nithin : Sure - my understanding was a broker is exempt from RIA regulations for their own clients and can advise his own clients. Upon confirmation trade the same advise through their own brokerage - which is akin to managing money - except you dont have discretionary powers like PMS or AIF where you dont need prior confirmation. Also, I am pretty sure Alpha membership allows shareholders, directors and immediate family members of directors to open UCCs.
As for AP, its the same, they can advise their own clients and then eventually implement that advise ?
Let me ask someone from our team to confirm by calling the exchange. @Meher_Smaran can you ping @VenuMadhav and figure this out? Share here after that.
You can advise, and the customer can decide to act on that advice. But it can’t be discretionary or you can’t trade on behalf of a customer without explicit instruction for every order.
In the case of AP, there is no such right to advice. This was possible when there was the concept of sub-brokers who also used to be registered with SEBI. Today an AP is an agent of the broker, and if the AP does give out advice, it is as if the broker is giving advice. I don’t think any broker will take responsibility of the advice dispensed by an AP.
@nithin@VenuMadhav - yes do confirm and let us know. Actually this is what I was given to understand by the exchange itself. The main constraint is however, UCCs cannot exceed 50.
Yes, discretion is not allowed. If your AP is acting on their own thats a problem - which is precisely where the fraud happens. But they can act as an extended arm to dispense broker’s house research. I think thats totally fine.
That said, its also the brokers diligence to see if the AP is competent enough to generate and give advise. It can also be the other way round where the AP advise is given to other broking clients. But yes, all advise whoever gives on broker’s behalf is broker’s compliance.
You’re right. I’m copy pasting the response I’ve received from our contact at NSE.
Maximum number of Client IDs allowed under this category will be 50. This is being allowed only to handle order flow of Family and Associate Firms / Companies and would include the following:
Individual - Self + Relatives**
HUFs of relatives
Firms in Which Self/ relatives jointly/severally hold interest of 51% or more
Companies in Which self/relatives jointly/severally hold interest of 20% or more
Partnership/LLP- Firms + Partners + their relatives**
HUFs of relatives
Firms in Which the firm or one or more partners or their relatives either jointly/severally hold interest of 51% or more
Companies in Which the firm/partners or their relatives jointly/severally hold interest of 20% or more
Corporate Company + Directors + their relatives ** + Holding Company + subsidiaries + Association companies (controlling interest 20% or more)
HUFs of relatives
Associate firms (controlling interest 51% or more)
Firms in Which the company or one or more directors or their relatives either jointly/severally hold interest of 51% or more
** The word ‘Relatives’ used above would be as defined under the Income tax Act, 1961 (plus HUF and maternal grandparents)
Yep - but most people wont qualify to get a membership as you need to have experience working with a SEBI registered intermediary before NSE can grant you membership or you need to employ someone who has.
For alpha membership i think anyone with 1Cr Net-worth and 45 Lakh NSE Deposit will get Membership. The retail license may have some sort of eligibility criteria .
@nithin any eligibility criteria for alpha membership? A Legal entity with above mentioned funds will get Alpha Membership?
1st of all the nature of business which in trading & F& O falls under finance category. when you are doing business 1st you need to define properly nature of business what you do. Here you need to clearly mention as **business of trading and dealing in shares and stocks, debentures, bonds, commercial paper and other securities of any description issued by Companies,Etc.
While mentioning this type of business one cant choose LLP OR OPC due to this nature of business are not allowed & you need to choose only Private limited company only. Due to tis falls under NBFC category under SEBI guidelines. Only private limited why means …tomorrow if you need to upgrade to NBFC & get SEBI license PLC are only allowed …Not LLP/ OPC.
Even while registering an company also with this nature of business MCA will not approve…we need to provide an declaration of when need we will take the license. Once business started immediately the License is no need 1st you need to do business of trading…in you books of accounts if you declare as there is profit & more than 50% of profit is coming from share trading & F & O then you need to upgrade by registering under NBFC & get SEBI license. All be will be about how you manage your Book of accounts.
Majority of people start trading in company is to save taxes. Many people will show nature of business as some thing & do trading which is as per law not right. above some people are shared videos of same. how can one define business as some thing & do some other business.
To be frank all this as not been properly monitored from SEBI… when they start doing this all will end up…so get proper guidance & start
What RBI Says;
You may need to get an NBFC license from RBI in the case of you doing this solely for the purpose of F&O trading you will fall under something called a 50-50 test. When the financial assets of the companies comprise of more than 50 % of the total assets and the income from financial assets amounts more than 50 % of the gross income, such businesses need to register with the RBI as an NBFC.
