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Sunday, 12 June 2011

Write a Note on the Underwriting

Definition of Under Writers :-
Agents or brokers which are appointed to sell the shares of the new company are called underwriters. They make the payment of subscribed shares in full to the company and sell them later on to the public. The risk of the shares is transferred to the under writers. They receive commission from the company.

Underwriting :-
It is a contract made by the promoters of the company with the agents or brokers for the sale of shares.

Importance of Underwriting

1. Helpers to promoters :-
The under writers are very helpful for the promoters in the starting project.

2. Business expansion :-
Business can be enlarged with the assistance and struggle of under writers.

3. Capital assurance :-
Underwriting provides required capital assurance to the promoters. So they enlarge the business according the provision of capital.

4. Experience of underwriters :-
A company also enjoys the benefits of specialized knowledge and experience of the under writers.

5. Status of the company improves :-
If the underwriters are capable then they will improve status and goodwill of the company.

6. Dissolution of underwriting :-
The underwriting council can be dissolved, if the securities are sold in the market.

In the less developed countries underwriting has not assumed much importance.

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