In investment banking,[1] an underwriting contract[2] is a contract between an underwriter and an issuer of securities.
The following types of underwriting contracts are the most common:
- In the firm commitment contract, the underwriter guarantees the sale of the issued stock at the agreed-upon price. For the issuer, it is the safest but the most expensive type of the contracts, since the underwriter takes the risk of sale.[2]
- In the best efforts contract, the underwriter agrees to sell as many shares as possible at the agreed-upon price.[2]
- Under the all-or-none contract, the underwriter agrees either to sell the entire offering or to cancel the deal.[2]
Stand-by underwriting,[3] also known as strict underwriting or old-fashioned underwriting is a form of stock insurance: the issuer contracts the underwriter for the latter to purchase the shares the issuer failed to sell under stockholders' subscription and applications.[4]
References
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