Most people evaluating a sub broker franchise agreement focus entirely on the revenue-share percentage and skip everything else — which is exactly how avoidable disputes happen later.
Before signing, you should carefully read at least seven clauses: revenue sharing, client ownership on termination, termination and notice period, scope of authorised activities, exclusivity/non-compete terms, security deposit and refund conditions, and dispute resolution/liability.
None of these is optional fine print — each one directly affects your income, your client relationships, and your legal standing if things go wrong. Here’s exactly what to look for in each.
Why Reading the Fine Print Actually Matters Here
A sub-broker/Authorized Person agreement isn’t a formality you sign to “get started” — it’s a legally binding commercial contract that governs your income, your obligations, and what happens if the partnership ends.
While the agreement’s core format is prescribed by the stock exchange, brokers can add supplementary clauses—as long as they don’t contradict SEBI or exchange stipulations.
That flexibility is exactly why two APs at two different brokers can have very different day-to-day experiences, even under seemingly similar revenue-share numbers.
Reading the agreement properly upfront is far cheaper than discovering an unfavourable clause after you’ve already built a client base.
Clause 1: Revenue-Sharing / Commission Structure
This is the clause most people read—but usually not closely enough. Don’t just check the headline percentage; check the mechanics behind it.
What to verify:
- Is the revenue-share flat, or slab-based (increasing with your brokerage volume)?
- How exactly is “net brokerage” calculated — before or after statutory/exchange deductions?
- Can the broker change the revenue-share percentage unilaterally, and if so, with how much notice?
- When and how often is the commission actually paid out?
For a full breakdown of how this calculation typically works, see our detailed guide on sub-broker income and commission structure
Clause 2: Client Ownership on Termination
This is the clause most first-time sub-brokers overlook entirely — and it can be the most consequential one.
Here’s the reality most people don’t expect: under SEBI’s own rights-and-obligations framework, if your agreement with the broker is terminated, your clients don’t automatically stay “yours.”
They’re deemed to become the broker’s direct clients, continuing their relationship under the same terms, unless the client chooses to end the relationship separately.
What to verify:
- Does the agreement clearly state what happens to your client base if the AP agreement ends?
- Does any clause address continued servicing rights or referral credit if a client stays with the broker after you exit?
- Does the broker commit to notifying clients transparently (SEBI requires this to happen via a public notification) if the agreement is terminated?
Why this matters: if you’ve spent years building a client base, understanding upfront that those relationships are legally tied to your appointing broker — not to you personally — should shape how you think about long-term business planning, including whether to diversify into other income streams like mutual fund distribution that you can carry independently.
Clause 3: Termination & Notice Period
Authorised Person agreements are generally terminable by either party without needing to state a reason — but the process around that termination is where the real detail lives.
What to verify:
- What is the minimum written notice period required from either side? (SEBI’s standard framework references a minimum of one month in comparable broker-client contexts — confirm the specific figure in your agreement.)
- What happens to pending or accrued commission if the agreement ends mid-cycle?
- Are you required to return any registration documentation, and within what timeframe?
- Is there a cooling-off or transition period during which you can still service existing clients?
Clause 4: Scope of Authorised Activities
This clause defines exactly what you’re legally allowed to do as an AP — and, just as importantly, what you’re not. It should align with the broader compliance boundaries every Authorized Person operates under.
What to verify:
- Does the agreement clearly list permitted activities (client onboarding, servicing, basic guidance) versus prohibited ones (holding client funds, conducting in-person verification, offering personalised investment advice)?
- Are you restricted to a specific product segment (equity, F&O, currency, commodity), or can you operate across all of them?
- What happens if you unintentionally operate outside this scope — is there a warning process, or immediate termination?
Clause 5: Exclusivity & Non-Compete Terms
Many agreements include language restricting you from operating with other brokers, and sometimes from working with competitors even after the agreement ends. This is worth understanding carefully.
What to verify:
- During the agreement: most brokers require segment-specific exclusivity — meaning you generally cannot be an AP for two competing brokers in the same trading segment simultaneously.
- After termination: be aware that under Indian contract law, post-termination non-compete clauses that restrict your right to earn a livelihood are generally treated as unenforceable (“restraint of trade” under Section 27 of the Indian Contract Act, 1872). If your agreement includes such a clause, it’s worth understanding that its practical enforceability may be limited — though you should still get this confirmed by a legal professional rather than relying solely on this general principle.
Clause 6: Security Deposit & Refund Conditions
If your chosen business model involves an upfront security deposit — common with higher revenue-share franchise structures — this clause deserves careful attention.
What to verify:
- Is the deposit fully refundable, and under what conditions?
- Are there any deductions applied at the time of refund (pending dues, penalties, administrative charges)?
- What is the timeline for refund processing after termination?
- Is the deposit adjusted or forfeited if you don’t meet a minimum performance requirement?
Clause 7: Dispute Resolution & Liability
This clause matters more than it seems, because SEBI holds the appointing broker responsible for the conduct of their Authorized Person — which means liability terms in your agreement directly affect you if something goes wrong with a client.
What to verify:
- What is the agreed dispute resolution process — typically, unresolved disputes are first routed through the exchange, and if unresolved, referred to arbitration?
- Does the agreement include an indemnity clause, and does it fairly distribute liability between you and the broker for compliance breaches?
- Are you protected from liability for issues genuinely outside your control (platform outages, broker-side errors)?
Green Flags vs Red Flags When Reviewing Your Agreement
| Green Flag | Red Flag |
| Revenue-share calculation method is explicitly defined | Revenue-share terms are vague or ‘subject to management discretion’ |
| Clear, written notice period for termination | No defined notice period, or one-sided termination rights |
| Transparent client-transition process on exit | No mention of what happens to your client relationships |
| Security deposit refund conditions clearly stated | Deposit refund left undefined or ‘as per company policy’ |
| Scope of permitted activities matches SEBI/exchange rules | Agreement pushes you toward activities outside AP boundaries (e.g., holding client funds) |
| Defined dispute resolution and liability-sharing process | No dispute resolution clause, or liability weighted entirely toward the AP |
Pre-Signing Checklist
Before you sign, make sure you can confidently answer all of the following:
1. Do I understand exactly how my revenue share is calculated, and can it change without my consent?
2. Do I know what happens to my clients if I leave or the broker terminates the agreement?
3. Is the notice period for termination clearly stated and fair to both sides?
4. Am I clear on exactly what activities I’m authorized (and not authorized) to perform?
5. Are the exclusivity terms reasonable, and is any post-termination restriction likely to be enforceable?
6. Is my security deposit refund process clearly defined, with no vague deduction language?
7. Do I know the exact process if a dispute arises with the broker?
FAQs on Sub Broker Agreement
Check out various FAQs related to Sub Broker Agreement.
Can I negotiate the terms of a sub-broker franchise agreement?
To an extent, yes. While the core agreement format is prescribed by the exchange, brokers can add supplementary clauses, and specific terms like revenue-share slabs or deposit amounts are often negotiable, especially if you bring an established client network.
What happens to my clients if I leave a broker as a sub-broker?
Under SEBI’s framework, your clients generally become direct clients of the broker upon termination of your AP agreement, unless the client separately chooses to end their own relationship with the broker.
Is a non-compete clause in a sub-broker agreement legally enforceable in India?
Post-termination non-compete clauses that restrict your ability to earn a livelihood are generally considered unenforceable under Indian contract law, though you should get any specific clause reviewed by a legal professional for your exact situation.
Can a broker change my revenue-share percentage after I’ve signed the agreement?
This depends entirely on what your specific agreement states. Some agreements allow for revisions with notice, while others fix the rate for the agreement’s term — which is exactly why this clause needs careful reading before signing, not after.
Do I need a lawyer to review a sub-broker agreement before signing?
It’s not mandatory, but given the financial and legal implications — especially around termination, client ownership, and liability — having a professional review the agreement, particularly if you’re investing a significant security deposit, is a reasonable precaution.
Final Takeaway
A sub-broker franchise agreement isn’t just paperwork standing between you and your first client — it’s the document that determines what you actually earn, what happens to your business if things change, and where you stand legally if a dispute arises.
Read the revenue-share mechanics carefully, understand that your clients legally belong to the broker relationship rather than to you personally, and don’t sign anything with vague termination or liability language.
A few extra hours reviewing these seven clauses now can save you significant frustration months or years into the business.