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Reference.org
Underwriting contract
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<p>In <a href="/facts/Investment_banking/WcxWICfI">investment banking</a>, an underwriting contract is a contract between an <a href="/facts/Underwriter/75rr1GD7">underwriter</a> and an <a href="/facts/Issuer/C901TkJf">issuer</a> of <a href="/facts/Security_(finance)/lJRYHKgD">securities</a>. </p><p>The following types of underwriting contracts are the most common: </p> <ul><li>In the <i>firm commitment contract,</i> 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.</li> <li>In the <i>best efforts contract,</i> the underwriter agrees to sell as many shares as possible at the agreed-upon price.</li> <li>Under the <i><a href="/facts/All-or-none/967kkNsK">all-or-none</a> contract</i>, the underwriter agrees either to sell the entire offering or to cancel the deal.</li></ul> <p><i>Stand-by underwriting</i>, also known as <i>strict underwriting</i> or <i>old-fashioned underwriting</i> is a form of stock <a href="/facts/Insurance/06VP8I3B">insurance</a>: the issuer contracts the underwriter for the latter to purchase the shares the issuer failed to sell under <a href="/facts/Stockholder/LjuL2KPt">stockholders</a>' subscription and applications. </p>