• Question regardint the legality of business idea/business plan

wanted to know if it would be legal to start a sole proprietorship firm where in the firm solicits and accepts money from citizens and uses it for equity trading activity. The firm proposes to return the money back to people after a specified time (say 4,6 or 12 months) along with certain promised interest. The firm gets to keep, any additional money generated from equity trading activity. I wanted to know if it would be legal/accepted business activity for a sole proprietorship.
From what I know, conducting such a business as a private company would be difficult as it involves getting license from the Reserve Bank of India. I realize that liability is unlimited in a sole proprietorship and I will have to put up my personal money to meet financial obligations but I am not worried about that much as I am reasonably confident of generating good enough returns from equity trading activity.
Asked 7 years ago in Business Law

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5 Answers

how can you guarantee certian rate of interest?

2) equity by nature is volatile and it is not possible to offer guaranteed returns

3) SEBI has take action against entities promising guaranteed returns

4) aply for and obtain certificate of registration as a portfolio management

services as required in terms of section 12(1) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as "the SEBI Act") read with regulation 3 of the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993 (hereinafter referred to as " the Portfolio Managers Regulations").

5) section Section 12(1) –SEBI act

"No stock-broker, sub- broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the regulations

made under this Act

6) SEBI (Portfolio Managers) Regulations, 1993

Regulation 3 –

"No person shall act as portfolio manager unless he holds a certificate granted by the Board under these regulations: ………………."

7) your business plan is illegal

Ajay Sethi
Advocate, Mumbai
95168 Answers
7604 Consultations

5.0 on 5.0

SEBI has taken action against entitles that promise assured returns to clients and fail to pay the assured returns .

2) if you want to provide portfolio management and advisory services register with SEBI

Ajay Sethi
Advocate, Mumbai
95168 Answers
7604 Consultations

5.0 on 5.0

1. The business is itself not illegal . It only requires compliance of few rules and regulations.

2. The first and foremost regulation is that you need license from RBI and approval from SEBI.

3. This looks like financial activity though equity investments. If that is so then it is perfectly valid and can be run like another equity broking form like Anand Rathi etc.

Devajyoti Barman
Advocate, Kolkata
22917 Answers
497 Consultations

5.0 on 5.0

A trading company functioning under a sole proprietor with functions of stock market option can very well be be started under sole proprietorship also.

To start a stock market trading company is your own decision.

T Kalaiselvan
Advocate, Vellore
85369 Answers
2231 Consultations

5.0 on 5.0

Running a stock broking business is not illegal in India.

You can follow the procedures meant for it meticulously

The city economic offences wing (EOW) arrested three people from Malad for running an illegal stock exchange. All the transactions were in cash and the daily turnover at this stock exchange was around Rs 5 crore.

The trio ran a parallel stock exchange, alleged police, adding that the transactions were not punched on any of the software provided by the registered stock exchanges in India, thus causing loss to the government by not paying securities transactions tax (STT), service tax, cess and other taxes to the government.

Thus if the alleged broking business is run illegally then you may have to see how the problems can be tackled if found at a later time.

T Kalaiselvan
Advocate, Vellore
85369 Answers
2231 Consultations

5.0 on 5.0

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