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Unit 10: Underwriting of Shares

(v) No brokerage will be paid on the shares subscribed by the institutions or banks Notes
against their underwriting agreements.
3. Fees of Managers to the Issue: Companies are free to appoint one or more agencies as
managers, but the total amount of fees to such persons should not exceed the following
limits:

(i) For issue up to 5 crore: 0.5%.
(ii) For issue over 5 crore: 0.2%.
In respect of the following, no fees shall be paid:
(a) On the amount of shares to be taken by institutions as investors or underwriters.

(b) Promoter’s quota of shares capital.
(c) On the amount of shares subscribed on right basis.

10.6.1 Marked and Unmarked Applications

Those applications which bear the official stamp of an underwriter or broker are called marked
applications and those which do not bear the official stamp of an underwriter, are called unmarked
applications. When there are more than one underwriters to underwrite the issue of a company
in an agreed ratio, importance of marked application arises. In this case each of the underwriter
makes an effort to sell the maximum shares or debentures through him in order to reduce his
risk. The least subscription of an underwriter will count to the advantage to some other
underwriter. Therefore an official seal is put on the application from each underwriter. This
official seal helps the company in recognizing as to which underwriter should get the credit for
that application. When applicants do not get application from any underwriter, but get the
application directly from the company (means unmarked application), the advantage of such
application is given to all underwriters in the ratio of gross liability of the underwriters. If there
is only one underwriter, he will get the credit of all applications whether it is marked (sealed) or
unmarked.

Notes Those applications which bear the official stamp of an underwriter or broker are
called marked applications and those which do not bear the official stamp of an underwriter,
are called unmarked applications.

10.6.2 Determination of the Liabilities of the Underwriters

The liability of the underwriter is determined on the basis of the nature of the underwriting
agreement. Therefore, the method of calculating the liability of the underwriters under different
type of agreement is given below:
1. Complete Underwriter Agreements: Complete underwriting is discussed in the following
two cases:
(a) When the entire issue of shares or debentures is underwritten only by one underwriter: If
the entire issue of shares or debentures is underwritten only by one underwriter,
the net liability of the underwriter will be determined by deducting marked and
unmarked applications received by the company from the gross liability of the
underwriter. Thus, underwriter will be liable to take up only those shares or
debentures which are not taken up by the public. If the issue of shares or debentures

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