Underwriting Contract
An underwriting contract is a legal agreement between an issuing company and an underwriter (usually an investment bank) in which the underwriter agrees to purchase and sell the company’s securities, such as stocks or bonds. The contract outlines the terms and conditions of the underwriting, including the fees, the price at which the securities will be offered, and the obligations of both parties. There are different types of underwriting contracts, including firm commitment, best efforts, and standby agreements.
Example
In a firm commitment underwriting contract, the underwriter agrees to purchase all the securities from the issuing company, assuming full responsibility for selling them to investors, even if they cannot sell all the shares.
Key points
• A legal agreement between an issuer and an underwriter for the sale of securities.
• Specifies the terms, pricing, and obligations of both parties.
• Can take different forms, such as firm commitment, best efforts, or standby underwriting.