Underwriting contract
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In investment banking,cite-ref-1[1] an underwriting contractcite-ref-handbook-2-0[2] 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.cite-ref-handbook-2-1[2]
• In the best efforts contract, the underwriter agrees to sell as many shares as possible at the agreed-upon price.cite-ref-handbook-2-2[2]
• Under the all-or-none contract, the underwriter agrees either to sell the entire offering or to cancel the deal.cite-ref-handbook-2-3[2]
Stand-by underwriting,cite-ref-3[3] 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.cite-ref-4[4]
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