Underwriting of securities-
- When a company offers shares to the public, it would like to ensure of the issue.
- A company with a view to protect subscription by members of the public and with a view to enabling it to get requisite amount of share capital, will enter into an agreement with financial institutions, whereby the financial institution undertake to subscribe or find someone else to subscribe to a certain of all the shares which are not taken up the public. This underwriting by the taken up by the financial institution is called contract.
- Type of Underwriting Contract- 1) Pure or Open underwriting
2) Firm Underwriting
3) Partial Underwriting
- SEBI has waived the earlier stipulation of compulsory underwriting of all public issues.
- Underwriting has now been made a voluntary proposition.