Underwriting contract

{{Short description|Contract between an underwriter and an issuer of securities}} In investment banking,<ref>{{Cite web |title=Underwriting |url=https://corporatefinanceinstitute.com/resources/equities/underwriting-overview/ |access-date=2022-11-16 |website=Corporate Finance Institute |language=en-US}}</ref> an '''underwriting contract<ref name="handbook">"The Investment Banking Handbook" by J. Peter Williamson, 1988, {{ISBN|0-471-81562-4}} , [https://books.google.com/books?id=6MnzYrLerlwC&dq=%22firm+commitment+contract%22&pg=PA128 ""Underwriting Contracts", p. 128]</ref>''' 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.<ref name=handbook/> * In the ''best efforts contract,'' the underwriter agrees to sell as many shares as possible at the agreed-upon price.<ref name=handbook/> * Under the ''all-or-none contract'', the underwriter agrees either to sell the entire offering or to cancel the deal.<ref name=handbook/>

''Stand-by underwriting'', 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.<ref>"The Law of Securities Regulation" by Thomas Lee Hazen, 1996, {{ISBN|0-314-08587-4}}, p. 405.</ref>

==References== {{reflist}}

Category:Initial public offering Category:Contract law Contract