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UNDERWRITING

OF
SHARES
CONTENTS:
Ø What is shares
Ø Types of shares
Ø Underwriting of shares
Ø Types of application forms
Ø Underwriting commission
SHARES
Ø The capital of a company can be divided into
different units with definite value called Shares.
Ø Holders or Buyers of these shares are called
Shareholders or Members of the company.
TYPES OF SHARES…
EQUITY SHARES
Ø Equity Shares will get dividend and repayment of
capital after meeting the claims of Preference
Shareholders.

Ø There will be no fixed rate of dividend to be paid


to the Equity Shareholders and this may vary
from year to year.

Ø This rate of dividend is determined by the


directors.

Ø Sometimes the rate can also exceed the rate of


Preference Shares, in case of larger profits.

Ø Sometimes they can also go out without dividend,


in case of no profits.
PREFERENCE SHARES
Ø These are shares which enjoy the
preferential rights on the dividend and
repayment of capital in the event of
winding up of the company over the
Equity Shares.
Ø The Preference Shareholders will get the
fixed rate of dividend.
TYPES OF
PREFERENCE SHARES
Ø Cumulative Preference Shares.
Ø Non-Cumulative Preference Shares.
Ø Redeemable Preference Shares.
Ø Participating preference shares.
UNDERWRITING OF
SHARES
Underwriting of shares is a guarantee or
insurance given by the underwriter to the
company that the shares offered to the
public will be subscribed in full.
UNDERWRITERS:
Underwriters are the person or institution
underwriting the public issue of share.
They ensure the company that in case the shares
that are offered to the public are not subscribed by
the public to the extent, the balance of shares will
be taken up by them.
TYPES OF APPLICATION
FORMS
Marked application: application forms received by
the company stamped in the name of underwriter
are called marked application.
Unmarked application: application forms received by
the company without the name of underwriter are
called unmarked application.
UNDERWRITING
COMMISSION
It is the consideration which is payable to the
underwriters for underwriting the shares of the
company.
This commission is paid at a specified rate on the
issue price of the shares underwritten.
PAYMENT OF
UNDERWRITING
Ø Articles must authorize the payment of such
commission.
Ø Rate should not exceed 5% of issue price if shares
or the amount authorize by the Articles whichever
is less.
Ø The commission agreed to be paid must be
disclosed in the prospectus.
Ø Number of shares which underwriters have agreed
to subscribe should be disclosed in the prospectus.
Ø A copy of contract regarding the payment of
commission should be delivered to the Registrar.
Ø The commission is only payable if the shares are
offered to the general public.