CORPORATE ACCOUNTING

 UNDERWRITTING

UNDERWRITING OF SHARES AND DEBENTURES

1) Meaning of underwriting

Underwriting is an agreement whereby the underwriter ensures the Company that in case the shares and debentures- offered to the public are not subscribed by the public to the taken up by the underwriter.

2) Underwriter

The person or Institution who underwrites the issue are known as underwriter

3) Underwriting commission

For this service, the underwriter charges an agreed commission calculated on the issue price of shares and debentures

Conditions (Sec.76)

a) The articles must permit the payment of underwriting commission

b) The rate of commission should not exceed 5% on issue price of shares or ate authorised by articles whichever is less.

c) The commission paid or agreed to be paid must be shown in the prospectus.

4) Marked Applications

            When the public get the application form through underwriters, they put a seal(their name) on the application form, such stamped application when received are called marked application.

5) Unmarked Applications

            When the public do not get the application form through underwriters but they send them directly to the company such forms do not bear any seal, (their name) and are called unmarked applications.

6) Types of underwriting:

        A) Pure underwriting

               Under this type of contract, underwriters under take to subscribe for shares and debentures which are not fully subscribed by the public.

       B) Firm Underwriting

               Under firm underwriting contract, underwriter agrees to buy a outright purchase of shares and debentures whether the issue will be Oversubscribed or under subscribed. They will get priorities over the general public. If shares and debentures are oversubscribed.