Underwriting Agreement

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Underwriting Agreement

All you need to know

What is an Underwriting Agreement?

An Underwriting Agreement is a legal contract signed between a company issuing new securities and an underwriter who agrees to purchase or guarantee the unsold shares. It defines the rights and responsibilities of both parties, the size of the issue, the commission or fee for the underwriter, and the terms of sale to the public. Such agreements protect the company by ensuring minimum subscription, while the underwriter takes on the risk of selling the securities in the market.

The Role of Underwriting in Successful Fundraising

Why is an Underwriting Agreement Needed?

An Underwriting Agreement provides financial security to companies raising capital through public issues. It assures the issuer that a certain number of securities will be subscribed, even if public response is low.

This agreement also helps in clearly defining the obligations of the underwriter, the pricing of securities, and timelines for payment. For investors and regulators, it shows transparency and professional handling of the issue, thereby building trust and credibility in the capital market.

Why Ebizfiling?

Ebizfiling offers expert legal drafting of Underwriting Agreements tailored to your business needs. Our team of advocates ensures that all important clauses such as underwriter obligations, commission, pricing, and settlement dates are carefully included to protect your interest. With clear pricing and professional support, we make the agreement drafting process smooth and reliable. We have expertise in Share Transfer & Transmission and MOA/AOA Printing Services. For assistance with drafting your Underwriting Agreement, contact us at 9643 203 209 or email us at info@ebizfiling.com.

Underwriting Agreement Fees

Choose Your Package

ESSENTIAL

2999/-

(All Inclusive)

Benefits of an Underwriting Agreement 

Raising Confidence

Helps companies raise funds with certainty during public offerings.

Clear Duties

Defines the responsibilities of the issuer and the underwriter in the issue.

Market Stability

Maintains balance in the securities market by covering unsold shares.

Risk Sharing

Transfers part of the financial burden from the company to the underwriter.

Expert Support

Provides professional handling of the issue through experienced underwriters.

Investor Trust

Builds credibility and confidence among investors in the capital market.

Minimum Assurance

Guarantees the company a fixed subscription even if public demand is low.

Business Focus

Allows companies to focus on core operations while the issue is managed.

Documents Required for Drafting an Underwriting Agreement 

Underwriting Agreement Documents

  • Certificate of Incorporation

  • Memorandum of Association (MOA) and Articles of Association (AOA)

  • Board Resolution approving the agreement

  • Details of securities to be issued

  • Financial Statements of the company

  • Identity Proof of Directors and Underwriters

  • Address Proof of Directors and Underwriters

  • PAN Card of the Company and Underwriters

Types of Underwriting Agreements 

Issue Size and Pricing

Mentions the total number of securities, offer price, and the method of pricing agreed upon.

Commission and Fees

Specifies the percentage or fee payable to the underwriter for taking the risk of the issue.

Obligations of the Underwriter

Defines the responsibility of the underwriter to purchase or guarantee the unsold securities.

Termination Rights

Provides conditions under which either party can terminate the agreement before completion.

Timeframe for Subscription

Sets the deadlines within which the underwriter must subscribe to the securities.

Settlement and Payment Terms

State the timeline and procedure for settlement of accounts and payment of dues.

 Types of Underwriting Agreements 

  • A Firm Commitment Underwriting is when the underwriter agrees to purchase the entire issue, taking full risk of any unsold securities.

  • In a Best Efforts Underwriting, the underwriter only promises to sell as many securities as possible without guaranteeing full subscription.

  • An All-or-None Underwriting requires that the entire issue be sold; otherwise, the agreement stands cancelled.

  • Under a Syndicate Underwriting, multiple underwriters join together to share the risk and responsibility of the issue.

  • A Standby Underwriting is used in rights issues where the underwriter agrees to purchase the portion left unsubscribed by existing shareholders.

 Who Needs an Underwriting Agreement? 

Large Startups

Growing startups planning IPOs may need underwriting support for subscription.

NRI Investors

Foreign investors participating in Indian issues benefit from underwriting security.

Issuing Companies

Businesses raising funds through public issues require an underwriting agreement.

Investment Banks

Financial institutions managing securities issues often act as underwriters.

 Step-by-Step Process to Draft an Underwriting Agreement 

1

Requirement Analysis

2

Draft Preparation

3

Clause Finalization

4

Legal Review

5

Agreement Execution

 What Ebizfiling do in Underwriting agreement? 

  • Understands your business needs and issue requirements.

  • Drafts a customized Underwriting Agreement with accurate clauses.

  • Ensures compliance with Indian securities and corporate laws.

  • Defines underwriter’s obligations, commission, and payment terms.

  • Reviews the draft legally to safeguard your company’s interest.

  • Provides end-to-end support until the agreement is executed.

  • Offers transparent pricing and quick turnaround time.

  • Dedicated assistance available at  09643203209  or  info@ebizfiling.com.

FAQ

 Frequently Asked Questions on Underwriting Agreement 

Get answers to all your queries

  • What is an underwriting agreement?

    It is a legal contract between a company issuing securities and an underwriter who agrees to purchase or guarantee unsold shares.

  • Why is an underwriting agreement important?

    It ensures minimum subscription of securities and reduces the risk of failure in a public issue.

  • Who are the parties to an underwriting agreement?

    The issuer company and the underwriter, which may be an investment bank, financial institution, or broker.

  • Is an underwriting agreement mandatory in an IPO?

    Yes, most IPOs require an underwriting agreement to secure investor confidence and meet regulatory norms.

  • What are the key clauses in an underwriting agreement?

    They include obligations of the underwriter, commission, pricing, issue size, termination rights, and settlement terms.

  • What is firm commitment underwriting?

    It is when the underwriter agrees to buy the entire issue, taking full risk of unsold securities.

  • What is best efforts underwriting?

    In this, the underwriter only promises to sell as many securities as possible but does not guarantee full subscription.

  • What is all-or-none underwriting?

    The issue succeeds only if all securities are sold; otherwise, it gets cancelled.

  • What is standby underwriting?

    It is used in rights issues, where the underwriter buys shares left unsubscribed by existing shareholders.

  • How is the underwriter compensated?

    The underwriter earns a commission or fee, usually a percentage of the issue size.

  • Who can act as an underwriter in India?

    Banks, financial institutions, stockbrokers, and SEBI-registered intermediaries can act as underwriters.

  • What are the risks for an underwriter?

    The main risk is being unable to sell securities in the market, which may cause financial loss.

  • What are the benefits for the company issuing securities?

    The company is assured of raising funds and gets professional support in managing the issue.

  • Can underwriting be shared among multiple underwriters?

    Yes, through syndicate underwriting, where risk and responsibility are divided.

  • What is the difference between underwriting and brokerage?

    Underwriting involves guaranteeing subscription of securities, while brokerage is just assisting in their sale.

  • What documents are required for an underwriting agreement?

    Documents include MOA, AOA, board resolution, financial statements, identity and address proof of directors and underwriters.

  • Can a startup also enter into an underwriting agreement?

    Yes, startups planning to raise capital through public or rights issues may use underwriting agreements.

  • Is SEBI approval required for underwriting agreements?

    Yes, underwriters in India must be registered with SEBI and agreements must comply with SEBI guidelines.

  • How long does it take to draft an underwriting agreement?

    With professional help, it can be drafted within a few working days depending on the complexity.

  • Why choose Ebizfiling for underwriting agreements?

    Ebizfiling offers expert legal drafting, transparent pricing, compliance with Indian laws, and personalized support at +91 9643 203 209 or info@ebizfiling.com.

Reviews

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    29 Mar 2022

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    01 Jun 2018

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