Underwriting

Underwriting is an agreement entered into by the company with one or more persons or institutions, called underwriters, who undertake to take-up the whole or certain portion of such shares or debentures as are net subscribed for by the public in consideration of a certain remuneration called underwriting commission.

Underwriting contacts are classified into following ways:

One the basis of number of shares, there are two types of underwriting such as complete underwriting and partial underwriting.

One the basis of liability of underwriters, there are open or pure underwriting and firm underwriting.

Complete Underwriting: It is an agreement under which the whole of the issue of debentures or shares of a company is underwritten by the underwriters.

Partial Underwriting: It is an agreement under which only a part of the issue of the debentures or shares of a company is underwritten by the underwriters.

Open or Pure Underwriting: It is an arrangement under which an underwriter or underwriters agree to take up the debentures or shares of a company only when the whole part of the issue of debentures or shares of the company underwritten by them is not fully subscribed for by the public.

Firm Underwriting:  It is an arrangement under which an underwriter or underwriters make the firm (i.e. definite) commitment to take up a specified number of shares or debentures of a company, irrespective of the number of shares or debentures subscribed for by the public.

Underwriting is the method which is used to find out the present eligibility of the customer inorder to receive some kind of financial product and the range of products contain a number of  financial devices like mortgagees for the business property of home, insurance coverage , a line of credit or venture project financing.

Questionnaire:

• What is underwriting?
• What are the types of underwriting?