Ordinarily, there’s a lot of people who don’t have the access, knowledge or skill required to navigate the world of finance. This gap between the public and financial institutions is often filled by brokerage businesses. 

A brokerage business serves as an agent between these parties, typically representing individuals looking to invest, secure a home loan, purchase insurance, or make other financial commitments. To start a brokerage business, one must be well-versed in finance (or the specific area they plan to serve) and possess a strong understanding of how the market works.

However, being a good broker is actually the bare minimum. Starting a brokerage business demands meticulous planning and a solid understanding of the legal landscape. If you’re thinking about launching your own brokerage business, you need to be well-prepared for the legal aspects – that’s where we come in.

What Do I Need To Start A Brokerage Business? 

There’s a number of legal considerations you will need to think about when starting your brokerage business. From registering your brokerage business the right way to making sure your business is legally compliant and protected, legal considerations are present at every step in your brokerage business’s journey. 

The first thing you need to do is figure out the specifics of your brokerage business and create a business plan. Brokerage services cover a wide spectrum of things, it’s important to understand exactly what your brokerage business will focus on. It’s much easier to navigate setting up your company, legal compliance and general business matters when you have a clear plan in place. 

Starting A Brokerage Business: Set Up And Registration 

After you have created a business plan for your brokerage business, it’s time to set up your business by registering it. This step involves making a vital decision for your brokerage business – deciding on the legal structure it will have. 

In Australia, the most common legal structures are a sole trader, partnership or a company. Each one has a different registration process, so you’ll need to know which one you’re going with prior to beginning. 

A sole trader and partnership have a relatively simple registration process. It involves getting an Australian Business Number (ABN), in partnership businesses each partner will need their own ABN. Once that’s complete, you will need to register a business name (unless you’re using your personal name for the business) and you might consider securing your partnership though a contract such as a Partnership Agreement

Despite this easy setup process, it’s important to be aware of the drawbacks of registering your  business as a sole trader or in a partnership. When you set up a business as a sole trader or in a partnership, there is no legal separation between you and the business. The business is attached to you personally, making you liable for everything that happens within it. This means, you’ll have very limited legal protection. Running a business with limited legal protection isn’t a particularly wise move, especially since there are some pretty high risks associated with a brokerage business. 

A company set up offers you much more legal protection, as a company operates as a separate legal entity from you. A company is able to buy and sell property, earn a profit, incur debt plus do a few other things that a legal person would also be able to do. As such, a company doesn’t need to exist attached to you personally, giving you limited liability. 

Registering a company can get a bit complex. You’ll need to follow the regulations set out by the Australian Securities and Investments Commission (ASIC), determine how your company will be governed as well as choose your directors and shareholders. Having a legal expert help out with registering your company can ensure that everything gets set up the way it needs to be. 

Attain The Necessary Permits and Registrations For Your Brokerage Business  

When considering legal protection for your brokerage business, legal compliance is a major factor. The registration stage for your business is a good time to think about getting the necessary licenses and permits required to start a brokerage business. Not doing so could lead to legal consequences for your business and you might even risk getting your business shut down. 

The licences and permits you will need are going to depend on your exact business operations. For instance, you might need to get an Australian Financial Services (AFS) licence, as most Australian financial services generally need one. Talking to a legal expert can help you get a better understanding of what licenses and permits you are required to have prior to starting operations as a brokerage business. 

Do Any Laws Apply To My Brokerage Business?

Legal compliance isn’t just limited to getting the right licences and permits. There are a number of laws your brokerage business will need to follow. It’s important to do your research and determine which laws will apply to your specific business (or chat with one of our legal experts) however, we’ve listed a few regulations you might want to consider bebelow.  

Industry Specific Regulations

When working as a brokerage business, there are likely going to be industry specific regulations you will need to follow. It’s important to understand whether you fall under relevant legislation such as the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. These laws determine your legal duties and obligations, reporting requirements, key customer information procedures and more. Understanding them is key to running a legally compliant brokerage business. 

Data and Privacy Law

As a brokerage business, you will likely have access to client information that needs to be kept secure. Ethically and legally, you are required to take reasonable measures to protect the information of your clients – neglecting to do so could lead to disastrous consequences. A legal expert can guide you on your obligations under data and privacy law (such as having a Privacy Policy) and point out any instruments that can help keep your information secure. Utilising legal documents such as an NDA or a Data Breach Response Plan can go a long way, so it’s important to have them ready to go.   

Australian Consumer Law 

Any business providing a service or selling a product needs to be familiar with the Australian Consumer Law (ACL). The ACL plays a key role in determining your relationship with your clients, as it sets out the responsibilities you have towards them. It’s necessary to understand your legal obligations under the ACL such as misleading and deceptive conduct, consumer guarantees and unfair contracts terms. 

Legal Documents To Start A Brokerage Business

As important as nailing legal compliance is, it’s not enough to legally secure your brokerage business. Legal agreements are necessary when it comes to protecting your business as it can help secure your rights, protect your revenue streams, safeguard your ownership and limit your liabilities where necessary. All of these matters and more are crucial when it comes to managing the risks your brokerage business is likely to be exposed to. 

A few legal documents to consider getting drafted include: 

A legal expert can help determine the exact documents that will benefit your brokerage business, so it’s a good idea to get in touch with one today. 

Do You Provide AFSL Advice? 

Yes we do! Our team of legal experts can help you determine whether your brokerage business will need an Australian Financial Services Licence plus any other legal obligations you may have. Remember, the financial industry is heavily regulated with some pretty strict codes of conduct. To run a successful brokerage business, it’s imperative to be familiar with your legal obligations so you can adhere to all the relevant rules. 

To learn more about our AFSL services, click here

Next Steps 

Starting a  brokerage business requires careful consideration of legal obligations, to summarise what we’ve discussed: 

  • Starting a brokerage business requires a solid understanding of finance, meticulous planning, and thorough knowledge of the legal landscape 
  • Creating a clear business plan is essential, as it helps in navigating setup, legal compliance, and general business operations 
  • Choosing the appropriate legal structure for your business (sole trader, partnership, or company) is a crucial step, with each having its own registration process and legal implications 
  • Obtaining necessary permits and licenses, such as an Australian Financial Services (AFS) licence, is vital to avoid legal consequences and ensure compliance 
  • Understanding and adhering to industry-specific regulations, data and privacy laws, and Australian Consumer Law is crucial for legal compliance and maintaining client trust 
  • Legal documents like service agreements, employment contracts, and business terms and conditions are essential for protecting your business and managing risks 

If you would like a consultation on starting a brokerage business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

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