The Underwriting Agreement entered between an entity issuing new securities and the managing underwriter that agrees to purchase the shares issued. Basic terms stated in the agreement are for responsibilities and rights of each parties, size of the issue, percentage of sale underwriters are allowed to keep, the price at which the security will be offered to the public, underwriter’s profit margin, the date by which the payments must be settled and other relevant clauses.
In such agreements the underwriter undertakes the risk of being unable to sell the underlying securities and the company is ensured of minimum subscription by the underwriter for a certain amount as commission.
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