Underwriting Agreements
description
Transcript of Underwriting Agreements
Underwriting Agreements
-Including Guidelines By SEBI
Submitted To
Mr. Shyamtanu Pal.
[Faculty of Law]
Submitted By
Aunnesha Dey
Semester V Sec C
Roll No- 38
Sociology Majors
Submitted On- 10th October, 2014
Hidayatullah National Law University
Uparwara, Post Abhanpur, Raipur (C.G.)
Table of Contents
1. Acknowledgment…………………………………………………………………….III
2. Research Methodology………………………………………………………………IV3. Review of Literature………………………………………………………………….IV4. Sources of Data………………………………………………………………………IV
5. Scope………………………………………………………………………………….IV
6. Nature of Study……………………………………………………………………….IV
7. Objectives of Study……………………………………………………………………IV
8. Research Questions……………………………………………………………………IV
9. Introduction…………………………………………………………………………….V10. Underwriting ………………………………………………………………………….VI
What is underwriting How it works/Example: Why it Matters: Types of Underwriting Types of underwriters Advantages of Underwriting Disadvantages of Underwriting Securities underwriting
11. Risk, exclusivity, and reward………………………………………………………...XV Marked and Unmarked Applications
12. Role of SEBI Registered Intermediaries – Underwriters……………………………XVI
Conditions for Registration (Rule 4)
Consideration of Application/Eligibility Criteria (Regulation 6)
Capital Adequacy Requirement (Regulation 7)
General Obligations and Responsibilities
General Responsibilities of an Underwriter (Regulation 15 to 17)
13. Conclusion…………………………………………………………………………...XX
14. Bibliography…………………………………………………………………………XXI
Acknowledgement
I feel highly elated to work on the topic “Underwriting Agreements.” The practical realization of
this project has obligated the assistance of many persons. I express my deepest regard and
gratitude to my teacher Mr. Shyamtanu Pal for his unstinted support. His consistent supervision,
constant inspiration and invaluable guidance have been of immense help in understanding and
carrying out the nuances of the project report.
I would like to thank my family and friends without whose support and encouragement, this
project would not have been a reality. I take this opportunity to also thank the University and the
Vice Chancellor for providing extensive database resources in the Library and through Internet.
My gratitude also goes out to the staff and administration of HNLU for the infrastructure in the
form of our library and IT Lab that was a source of great help for the completion of this project
Some printing errors might have crept in, which are deeply regretted. I would be grateful to
receive comments and suggestions to further improve this project report.
Aunnesha Dey
Semester V
Roll no 38
Section C
Research Methodology
This research project is largely based on secondary & electronic sources of data. Books, case
laws, journals & other reference as guided by faculty of Jurisprudence are primarily helpful for
the completion of this project.
Research Questions
Who are underwriters?
What is the role of underwriters?
Why and when do Corporations need underwriters?
Objectives of Study
To study the concept of underwriters
To discuss the work undertaken by the underwriters
To discuss as to why underwriting agreements are entered upon by the Corporations
Nature of Study
This research project is Theoretical in nature since it is largely based on secondary & electronic
sources of data and also since there is no field work involved while producing this research and it
largely involves study of various articles and comparison from different books, journal and other
online sources thus not being empirical in nature.
Sources of Data
Data that were used for the completion of this research project are all secondary sources of data
ranging from books, journal, articles and other online sources and as far as case laws are
concerned these cannot be said to be primary sources since they are not first-hand information or
judgment reports but a modified form found in books or journals.
Review of Literature
The New Company Law by Dr. N.V. Paranjape, 6th Edition, 2014 –This book dealt with providing an insight to the concept of underwriters.
Underwriting - Abdul Nasserhttp://easyaccountingandfinance.blogspot.in/2013/02/underwriting-of-shares-and-debentures.htmlThe technical concept of underwriting has been provided by the author
The Free MBA resource- http://www.freemba.in/articlesread.php?artcode=463&substcode=28&stcode=10Provided the advantages of underwriting
Underwriting of shares by Ruby Sharma on Jun 26, 2013 http://www.slideshare.net/rubysharma5667/underwriting-ofshares Provided the disadvantages of underwriting.
Underwriting by Avkris on Jan 29, 2013http://www.slideshare.net/Avkris/underwriting-16245384Discussed the concept of Securities underwriting
Scope
The research topic about the Underwriting Agreements and Regulatory Guidelines by SEBI is an
informative & enlightening topic and it is important as well because it deals with such a
profound concept which is often used by the Corporations for raising Capital. The research paper
also deals with the topic’s relevance in the Corporate World.
Introduction
In case of public limited companies the minimum subscription must be received to get the
certificate of commencement of business. There is always a risk of under subscription so, to
overcome this risk the companies resort to underwriting. Underwriting is a sort of contract
whereby some individuals, firms or companies give guarantee to the company, that in case the
issue of shares or debentures is undersubscribed, they will take up that unsubscribed portion on
the same terms as applicable to the public. Thus the underwriting is like a guarantee or insurance
given by the underwriters to the company that the shares or debentures offered to the public will
be fully subscribed, being they also charge some commission mostly calculated on the issue
price of shares and debentures.
In India, the business of the underwriting is usually done by some specialized institutions, the
most important of which are Industrial Development Bank Of India(IDBI), Industrial Credit And
Investment Corporation Of India(ICICI), Industrial Finance Corporation Of India(IFBI), Life
Insurance Corporation Of India(LIC).
The financial agency is known as the underwriter and it agrees to buy that part of the company
issues which are not subscribed to by the public in consideration of a specified underwriting
commission. The underwriting agreement, among others, must provide for the period during
which the agreement is in force, the amount of underwriting obligations, the period within which
the underwriter has to subscribe to the issue after being intimated by the issuer, the amount of
commission and details of arrangements, if any, made by the underwriter for fulfilling the
underwriting obligations. The underwriting commission may not exceed 5 percent on shares and
2.5 percent in case of debentures. Underwriters get their commission irrespective of whether they
have to buy a single security or not.
Underwriting
In order to get certificate to commence business, public limited companies have to get minimum
subscription. For ensuring minimum subscription, public companies enter into underwriting
agreement.
According to section 76 of the Companies Act 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 extent, the balance of shares and debentures will be
taken up by the underwriter.
For guaranteeing the sale of shares and debentures, the underwriter charges an agreed
commission usually calculated on the issue price of shares or debentures.
According to section 76 of the Companies Act underwriting commission can be paid only subject
to the following conditions.
1. The payment of commission must be authorized by the Articles of Association.
2. The rate of commission should not exceed 5% if the price at which the shares are issued or any
lesser amount prescribed by the Articles. In case of debentures, it should not exceed 2.5%
3. The rate of commission and number of shares/debentures which persons have agreed to
subscribe absolutely or conditionally should be disclosed in the prospectus or statement in lieu of
prospectus.
4. A copy of the underwriting contract should be delivered to the Register along with the
prospectus.1
1 UNDERWRITING-ABDUL NASER KODAMPUZHA http://easyaccountingandfinance.blogspot.in/2013/02/underwriting-of-shares-and-debentures.html
What is underwriting
In the securities industry an underwriter is a company, usually an investment bank, which helps
companies introduce their new securities to the market. Underwriting is an agreement whereby
the underwriters ensure the company that in case the shares and debentures offered to the public
are not subscribed by the public to the extent, the balance of shares and debentures will be taken
up by the underwriters. The firms or persons who are engaged in underwriting are
called underwriters. The commission payable to underwriters for underwriting is known
as underwriting commission.
How it works/Example:
When a company wants to issue stock, bonds, or other publicly traded securities, it hires an
underwriter to manage what is often a long and complex process.
To begin the offering process, the underwriter and the issuer first determine the kind of offering
the issuer needs. Sometimes the issuer wants to sell shares via an initial public offering
(IPO) cash proceeds return to the issuing company as capital to fund its projects. Other
offerings, such as secondary offerings, funnel the proceeds to a shareholder who is selling some
or all of his or her shares. Split offerings occur when a portion of the offering go to the company
while the rest of the proceeds goes to an existing shareholder. Shelf offerings allow the issuer to
sell shares over a two-year period.
After determining the offering structure, the underwriter usually assembles what is called
a syndicate to get help manage the minutiae (and risk) of large offerings. A syndicate is a group
of investment banks and brokerage firms that commit to sell a certain percentage of the offering.
(This is called a guaranteed offering because the underwriters agree to pay the issuer for 100% of
the shares, even if all the shares can't be sold). With riskier issues, underwriters often act on a
"best efforts" basis, in which case they sell as many shares as they can and return the unsold
shares back to the issuing firm.
After the syndicate is assembled, the issuer files a prospectus. The Securities Act of
1933 requires the prospectus to fully disclose all material information about the issuer, including
a description of the issuer's business, the name and addresses of key company officers, the
salaries and business histories of each officer, the ownership positions of each officer, the
company's capitalization, an explanation of how it will use the proceeds from the offering, and
descriptions of any legal proceedings the company is involved in.
With prospectus in hand, the underwriter then proceeds to market the securities. This usually
involves aroad show, which is a series of presentations made by the underwriter and the issuer's
key executives to institutions (pension plans, mutual fund managers, etc.) across the country. The
presentation gives potential buyers the chance to ask questions from the management team. If the
buyers like the offering, they make a non-binding commitment to purchase, called a subscription.
Because there may not be a firm offering price at the time, purchasers usually subscribe for a
certain number of shares. These processes let the underwriter gauge the demand for the offering
(called indications of interest) and determine whether the contemplated price is fair.
Determining the final offering price is one of the underwriter's most important responsibilities.
First, the price determines the size of the capital proceeds. Second, an accurate price estimate
makes it easier for the underwriter to sell the securities. Thus, the issuer and the underwriter
work closely together to determine the price. Once an agreement is reached on price and the SEC
has made the registration statement effective, the underwriter calls the subscribers to confirm
their orders. If the demand is particularly high, the underwriter and issuer might raise the price
and reconfirm this with all the subscribers.
Once the underwriter is sure it will sell all of the shares in the offering, it closes the offering.
Then it purchases all the shares from the company (if the offering is a guaranteed offering), and
the issuer receives the proceeds minus the underwriting fees. The underwriters then sell the
shares to the subscribers at the offering price. If any subscribers have withdrawn their bids, then
the underwriters simply sell the shares to someone else or own the shares themselves. It is
important to note that the underwriters credit the shares into all subscriber accounts (and
withdraw the cash) simultaneously so that no subscriber gets a head start.
Although the underwriter influences the initial price of the securities, once the subscribers begin
selling, the free-market forces of supply and demand dictate the price. Underwriters usually
maintain a secondary market in the securities they issue, which means they agree to purchase or
sell securities out of their own inventories in order to keep the price of the securities from
swinging wildly.
Why it Matters:
Underwriters bring a company's securities to market. In so doing, investors become more aware
about the company. Issuers compensate underwriters by paying a spread, which is the difference
between what the issuer receives per share and what the underwriter sells the shares for. For
example, if Company XYZ shares had a public offering price of $10 per share, XYZ Company
might only receive $9 per share if the underwriter takes a $1 per share fee. The $1 spread
compensates the underwriter and syndicate for three things: negotiating and managing
the offering, assuming the risk of buying the securities if nobody else will, and managing
the sale of the shares. Making a market in the securities also generates commission revenue for
underwriters.
Underwriters take on considerable risk. Not only must they advise a client about matters large
and small throughout the process, they relieve the issuer of the risk of trying to sell all the shares
at the offer price. Underwriters often mitigate this risk by forming a syndicate whose members
each share a portion of the shares in return for a portion of the fee.
Underwriters work hard to determine the "right" price for an offering, but sometimes they
leave money on the table. For example, if Company XYZ prices its 10 million shares IPO at $15
per share but the shares trade at $30 two days after the IPO, this suggests that the underwriter
probably underestimated the demand for the issue. As a result, Company XYZ received $150
million (less underwriting fees) when it could have possibly fetched $300 million. Thus, the
issuing company must also follow a robust due diligence process on their end in order to
optimize their capital raising efforts.
Types of Underwriting
On the basis of the number of shares or debentures underwritten by the underwriters,
underwriting contracts may be divided into two types. They are:
1. Complete Underwriting: Complete underwriting is an arrangement under which the whole of
the issue of shares or debentures of a company is underwritten by the underwriters. The whole of
the issue of shares or debentures of the company may be underwritten either by a single
underwriter or by two or more underwriters.
2. Partial Underwriting: Partial underwriting is an arrangement under which only a part of the
issue of shares or debentures of a company is underwritten by the underwriters. The part of the
issue of shares or debentures of the company may be underwritten either by a single underwriter
or by two or more underwriters.
On the basis of the liability undertaken by the underwriters in respect of the shares and
debentures underwritten by them, underwriting agreements may be classified into two types.
1. Open or Pure Underwriting: Open underwriting is an arrangement under which an
underwriter or underwriters agree to take up the shares or debentures of a company only
when the whole or a part of the issue of shares of debentures of the company
underwritten by him or them is not fully subscribed for by the public . In the case of open
underwriting, the liability of the underwriter or underwriters is conditional, i.e., his or
their liability arises only when the whole or a part of the issue underwritten by them is
not subscribed for in fully by the public
2. Firm Underwriting: Firm underwriting is an arrangement under which an under writer
makes a firm 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.
Even if the issue of shares or debentures is fully or over-subscribed, the underwriter is
required to take up the shares or debentures which he has agreed to take up under the firm
underwriting agreement.
Types of underwriters
Underwriting of capital issues has become very popular due to the development of the capital
market and special financial institutions. The lead taken by public financial institutions has
encouraged banks, insurance companies and stock brokers to underwrite on a regular basis. The
various types of underwriters differ in their approach and attitude towards underwriting:-
Development banks like IFCI, ICICI and IDBI: - they follow an entirely objective
approach. They stress upon the long-term viability of the enterprise rather than immediate
profitability of the capital issue. They attempt to encourage public response to new issues
of securities.
Institutional investors like LIC and AXIS: - their underwriting policy is governed by their
investment policy.
Financial and development corporations: - they also follow an objective policy while
underwriting capital issues.
Investment and insurance companies and stock-brokers: - they put primary emphasis on
the short term prospects of the issuing company as they cannot afford to block large
amount of money for long periods of time.
To act as an underwriter, a certificate of registration must be obtained from Securities and
Exchange Board of India (SEBI). The certificate is granted by SEBI under the Securities and
Exchanges Board of India (Underwriters) Regulations, 1993. These regulations deal primarily
with issues such as registration, capital adequacy, obligation and responsibilities of the
underwriters. Under it, an underwriter is required to enter into a valid agreement with the issuer
entity and the said agreement among other things should define the allocation of duties and
responsibilities between him and the issuer entity. These regulations have been further amended
by the Securities and Exchange Board of India (Underwriters) (Amendment) Regulations, 2006.
Advantages of Underwriting
1. Assurance of Adequate Finance.
Underwriting is a guarantee given buy the underwriters to take up the whole issue or
remaining shares, not subscribed by public. In the absence an underwriting agreement, a
company may face a situation where even minimum subscription is not received and, it
will have to go, into liquidation. In case of an existing company, it may have to postpone
its projects for which the issue was meant. As a result of an underwriting contract, a
company has not to wait till the shares have been subscribed before entering into the
required contracts for purchase of fixed assets etc. it can go ahead with its plan
confidently. Thus, underwriting agreement assures of the required funds within a
reasonable or agreed time.
2. Benefit of Expert Advice.
An incidental advantage of underwriting is that the issuing company gets the benefit of
expert advice. An underwriter of repute would go into the soundness of the plan put
forward by the company before entering into an agreement and suggest changes wherever
necessary, enabling the company to avid certain pitfalls.
3. Increase in Goodwill of the Company.
The good underwriters being men or firms of financial integrity an established reputation.
As we have already explained that underwriters satisfy themselves with the financial
integrity of the company and viability of the plan, the investors therefore, run much less
risk when they buy shares or debentures which have been underwritten by them. They
assure of the soundness of eh company. Thus, good underwriters increase the goodwill of
the company.
4. Geographical Dispersion of Securities.
Generally, underwriters maintain working arrangement with other underwriters and
brokers throughout the country and in other countries too and as such, they are able to tap
the financial resources for the company not only in on particular area but also in other
areas as well. In this way marketability of securities increases and geographical
dispersion of shares and debentures in promoted.2
2 The Free MBA resource- http://www.freemba.in/articlesread.php?artcode=463&substcode=28&stcode=10
Disadvantages of Underwriting
1. Underwriting is very costly method of marketing of securities.
2. Issuing company has to provide secret information about its affairs to the underwriters
and misuse of such information is possible.
3. Underwriter may secure control on the company by virtue of purchasing large number of
shares not purchased by the investing class.3
Securities underwriting
Securities underwriting refers to the process by which investment banks raise investment capital
from investors on behalf of corporations and governments that are issuing securities (both equity
and debt capital). The services of an underwriter are typically used during a public offering. This
is a way of selling a newly issued security, such as stocks or bonds, to investors. A syndicate of
banks (the lead managers) underwrites the transaction, which means they have taken on the risk
of distributing the securities. Should they not be able to find enough investors, they will have to
hold some securities themselves. Underwriters make their income from the price difference (the
"underwriting spread") between the price they pay the issuer and what they collect from
investors or from broker-dealers who buy portions of the offering.4
Risk, exclusivity, and reward
Once the underwriting agreement is struck, the underwriter bears the risk of being unable to sell
the underlying securities, and the cost of holding them on its books until such time in the future
3 Underwriting of shares by Ruby Sharma on Jun 26, 2013 http://www.slideshare.net/rubysharma5667/underwriting-ofshares
4 Underwriting by Avkris on Jan 29, 2013
http://www.slideshare.net/Avkris/underwriting-16245384
that they may be favorably sold. If the instrument is desirable, the underwriter and the securities
issuer may choose to enter into an exclusivity agreement. In exchange for a higher price paid
upfront to the issuer, or other favorable terms, the issuer may agree to make the underwriter the
exclusive agent for the initial sale of the securities instrument. That is, even though third-party
buyers might approach the issuer directly to buy, the issuer agrees to sell exclusively through the
underwriter. In summary, the securities issuer gets cash up front, access to the contacts and sales
channels of the underwriter, and is insulated from the market risk of being unable to sell the
securities at a good price. Also, if the securities are priced significantly below market price (as is
often the custom), the underwriter also curries favor with powerful end customers by granting
them an immediate profit perhaps in a quid pro quo.5
Marked and Unmarked Applications
When the issue of shares or debentures of a company is underwritten in part or when the issue of
shares or debentures of a company is underwritten by two or more underwriters, either in full or
in part, to determine the liability of the single underwriter of the liability of each of the several
underwriters, it becomes necessary to know as to how many applications have been received
through the single underwriter or through each of the several underwriters. To make it easy to
know as to how many applications have been received through the single underwriter or each of
the several underwriters, it becomes necessary that the applications for shares or debentures sent
through the single underwriter or through the several underwriters should bear the official stamp
of the single underwriter or the official stamp of the respective underwriters. Application bearing
the official stamp of the single underwriter or of the respective underwriters are called marked
applications, and the applications received by a company directly from the public, which do not
bear the official stamp of the under writer or underwriters, are called unmarked applications.
Role of SEBI Registered Intermediaries - Underwriters
Eligibility criteria, Procedure for registration and operational guidelines are covered under SEBI
(Underwriters) Rules, 1993 and SEBI (Underwriters) Regulations 1993. The words
"underwriting" and "Underwriter" are defined in the aforesaid Rules as under.
5 Underwriting by Avkris on Jan 29, 2013
http://www.slideshare.net/Avkris/underwriting-16245384
"Underwriting" means an agreement with or without conditions to subscribe to the
securities of a body corporate when the existing shareholders of such body corporate or
the public do not subscribe to the securities offered to them.
"underwriter" means a person, who engages in the business of underwriting of an issue of
securities of a body corporate;
Rule 3(1) of the aforesaid Rules makes Registration with the SEBI compulsory. To quote the
said Rule- "No person shall act as underwriter unless he holds a certificate granted by the Board
under the regulations".
Conditions for Registration (Rule 4)
The Board may grant or renew a certificate to an underwriter subject to the following conditions
namely;
a. in case of any change in the status and constitution, the underwriter shall obtain prior
permission of the Board to continue to act as underwriter;
b. without prejudice to the obligations under any other, the underwriter shall enter into a
valid agreement with the body corporate on whose behalf he is acting as underwriter and
the said agreement amongst other things may define the allocation of duties and
responsibilities between him and such body corporate and;
c. he shall pay the amount of fees of registration in the manner provided in the regulations;
d. He shall abide by the rules and regulations made under the Act in respect of the activities
carried on by him as an underwriter.
Consideration of Application/Eligibility Criteria (Regulation 6)
The Board shall take into account for considering the grant of a certificate, all matters which are
relevant to or relating to underwriting and in particular the following, namely, whether the
applicant
For the purposes of this clause the Board shall take into account whether a previous application
for a certificate of any person directly or indirectly connected with the applicant has been
rejected by the Board or any disciplinary action has been taken against such person under the Act
or any of the Rules or any of the Regulations made under the Act fulfils the capital adequacy
requirements specified in regulation or any of its director, partner or principal officer is or has at
any time been convicted for any offence involving moral turpitude or has been found guilty of
any economic offence. Is a fit and proper person."
Capital Adequacy Requirement (Regulation 7)
1. The capital adequacy requirement referred to in sub- regulation (d) of regulation 6 shall
not be less than the net worth of rupees twenty lakhs;
2. Notwithstanding anything contained in sub-regulation (1),-
a. every stock broker, who acts as an underwriter shall fulfil the capital adequacy
requirements specified by the stock exchange of which he is a member;
b. Every merchant banker, who acts as an underwriter shall fulfill the capital
adequacy requirements specified in regulation 7 of the Securities and Exchange
Board of India (Merchant Banker) Regulations 1992.
General Obligations and Responsibilities
Every underwriter shall at all times abide by the Code of Conduct as specified in Schedule III.
(Regulation 13)
Every underwriter shall enter into an agreement with each body corporate on whose behalf he is
acting as underwriter and the said agreement shall, amongst other things, provide for the
following, namely :- (Regulation 14)
i. the period for which the agreement shall be in force;
ii. the amount of underwriting obligations;
iii. the period, within which the underwriter has to subscribe to the issue after being
intimated by or on behalf of such body corporate;
iv. the amount of commission or brokerage payable to the underwriter;
v. Details of arrangements, if any, made by the underwriter for fulfilling the underwriting
obligations.
vi. General Responsibilities of an Underwriter (Regulation 15 to 17)
1. The underwriter shall not derive any direct or indirect benefit from underwriting the issue
other than the commission or brokerage payable under an agreement for underwriting.
2. The total underwriting obligations under all the agreements referred to in clause (b) of
rule 4 shall not exceed twenty times the net worth referred to in regulation 7.
3. Every underwriter, in the event of being called upon to subscribe for securities of a body
corporate pursuant to an agreement referred to in clause (b) of rule 4 shall subscribe to
such securities within 45 days of the receipt of such intimation from such body corporate.
To Maintain Proper Books of Accounts and Records, etc. (Regulation 16)
1. In relation to underwriter being a body corporate -
i. A copy of the balance sheet and profit and loss account a copy of the
auditor's report.
in relation to an underwriter not being a body corporate -
ii. records in respect of all sums of money received and expended by them
and the matters in respect of which the receipt and expenditure take place;
and
iii. Their assets and liabilities.
2. Every underwriter shall, after the close of each financial year as soon as possible but not
later than six months from the close of the said period furnish to the Board if so required
copies of the balance sheet, profit and loss account, statement of capital adequacy
requirement and such other documents as may be required by the Board under regulation
16.
3. Every underwriter shall also maintain the following records with respect to -
i. Details of all agreements.
ii. Total amount of securities of each body corporate subscribed to in pursuance of
an agreement.
iii. statement of capital adequacy requirements ;
iv. Such other records as may be specified by the Board for underwriting.
Every underwriter shall intimate to the Board the place where the books of accounts, records and
documents are maintained.
Every underwriter shall preserve the books of account and other records and documents
mentioned under this chapter for a minimum period of five years. (Regulation 17)
Appointment of Compliance Officer (Regulation 17A)
1. Every underwriter shall appoint a compliance officer who shall be responsible for
monitoring the compliance of the Act, rules and regulations, notifications, guidelines,
instructions, etc. issued by the Board or the Central Government and for redressal of
investors' grievances.
2. The compliance officer shall immediately and independently report to the Board any non-
compliance observed by him
Power to Call for Information (Regulation 18)
1. The Board may at any time call for any information from an underwriter with respect to
any matter relating to underwriting business.
2. Where any information is called for, it shall be the duty of the underwriter to furnish such
information.6
Conclusion
6Capital Market Functioning- http://easyaccountingandfinance.blogspot.in/2013/02/underwriting-of-shares-and-debentures.html
Underwriting has become very important in recent years with the growth of the corporate sector.
It provides several benefits to a company. It relieves the company of the risk and uncertainty of
marketing the securities.
Underwriters have an intimate and specialized knowledge of the capital market. They offer
valuable advice to the issuing company in the preparation of the prospectus, time of floatation
and the price of securities, etc. They also provide publicity service to the companies which have
entered into underwriting agreements with them. It helps in financing of new enterprises and in
the expansion of the existing projects. It builds up investors' confidence in the issue of securities.
The association of well-known underwriters lends prestige to the company and the investors feel
that the issue is sound enough for profitable investment. Also, the securities underwritten by
reputed underwriters receive better response from the public. The issuing company is assured of
the availability of funds. Important projects are not delayed for want of funds. It facilitates the
geographical dispersal of securities because generally, the underwriters maintain contacts with
investors throughout the country.
Bibliography
The New Company Law by Dr. N.V. Paranjape, 6th Edition, 2014
Underwriting - Abdul Naserhttp://easyaccountingandfinance.blogspot.in/2013/02/underwriting-of-shares-and-debentures.html
The Free MBA resource- http://www.freemba.in/articlesread.php?artcode=463&substcode=28&stcode=10
Underwriting of shares by Ruby Sharma on Jun 26, 2013 http://www.slideshare.net/rubysharma5667/underwriting-ofshares .
Underwriting by Avkris on Jan 29, 2013http://www.slideshare.net/Avkris/underwriting-16245384