Legal Definitions - commission broker

A commission broker is an individual or firm that acts as an intermediary, facilitating transactions between a buyer and a seller. Their primary method of compensation is a commission, which is a fee typically calculated as a percentage of the transaction's value or a fixed amount per unit traded, and is paid upon the successful completion of the transaction. Unlike a principal, a commission broker does not take ownership of the assets being bought or sold; instead, they connect parties and manage the transaction process on behalf of their clients.

• Example 1: Imagine a small business owner, Maria, wants to sell her company to retire. She hires a business broker to find a suitable buyer. The broker markets Maria's business, screens potential buyers, helps negotiate the sale price, and assists with the paperwork. When the business is successfully sold, the broker receives a pre-agreed percentage of the final sale price as their fee.

  Explanation: The business broker acts as a commission broker because they facilitate the sale of an asset (Maria's business) between two parties without owning the business themselves, and their payment is a commission directly tied to the successful completion and value of the sale.

• Example 2: A large investment fund decides to purchase a significant quantity of government bonds. They instruct a bond broker to execute this trade on their behalf. The bond broker accesses various markets, finds the best available prices, and completes the purchase. For this service, the broker charges a small fee based on the total value of the bonds acquired.

  Explanation: In this scenario, the bond broker functions as a commission broker by connecting the investment fund with the bond market. They do not own the bonds but facilitate their acquisition, earning a commission based on the value of the transaction.

• Example 3: An art collector wishes to sell a valuable painting from their private collection. They engage an art broker who specializes in high-value artworks. The art broker authenticates the piece, markets it discreetly to potential buyers worldwide, and manages the negotiation and sale process. Upon the painting's successful sale, the art broker receives a percentage of the final sale price.

  Explanation: This illustrates a commission broker because the art broker acts as an intermediary, connecting the seller with a buyer for a specific asset (the painting). Their compensation is a commission, contingent upon and calculated from the successful sale of the artwork.