It is contract between a company and other party, if public will not subscribe issued shares or debentures, underwriters will purchase.
They can charge commission in case of debentures up to 2.5% and shares 5%.
Marked applications:
If name of underwriter is shown by applicant against which he is applied known as a marked application.
Un Marked applications:
If name of underwriter is not shown by applicant against which he is applied known as a un marked application.
Marked applications will be directly credited to underwriter.
Unmarked applications will be credited in the gross liabilities ratio.
Firm under writing:
When underwriters purchase shares by themselves.
Credit is given – if firm underwriting is treated as a marked application.
Credit is not given – if firm underwriting is treated as a unmarked application.