The 3 main types of underwriting agreements are:
i) Complete underwriting. If the whole issue of shares or debentures of a company is underwritten, it is called complete underwriting. In such a case the whole issue is underwritten either by an individual/institution agreeing to take the entire risk or by a number of firms or institutions each agreeing to take the risk to a limited extent.
ii) Partial underwriting. If part of the issue of shares or debentures of a company is underwritten, it is said to be partial underwriting. In such a case the part of the issue is underwritten either by an individual/institution or by a number of firms or institutions each agreeing to take the risk to a limited extent.
iii) Firm underwriting. Firm underwriting means when an underwriter agrees to buy a definite number of shares or debentures in addition to the shares or debentures he has to take under the underwriting agreement. In case of firm underwriting the underwriters get issue is over subscribed, the underwriters are liable to take up the agreed number of shares or debentures.
Before discussing in detail let us know about the disclosure requirements:
The provisions of the Companies Act, 1956 regarding disclosure of underwriting agreement are as follows:
1. Disclosure in the Prospectus. Where any issue of shares or debentures is underwritten, the names of the underwriters and the opinion of the directors that the resources of the underwriters are sufficient to discharge their obligations should be specified in the prospectus. As per provisions of Section 76 of the Companies Act, 1956, the number of shares or debentures which the underwriters have agreed to subscribe along with the amount or rate of commission payable to them should be disclosed in the prospectus or statement in lieu of prospectus, as the case may be.
2. Disclosure in Statutory Report. It shall set out the extent, if any, to which each underwriting contract, if any, has not been carried out and the reasons therefore.
3. Disclosure of sums payable. All sums payable by commission and brokerage etc. must be disclosed in the Balance Sheet, under the heading Miscellaneous Expenditure as per requirements of Schedule VI of the Companies Act.