Underwriting Contract

In investment banking,^[1] an underwriting contract^[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.^[2]
• In the best efforts contract, the underwriter agrees to sell as many shares as possible at the agreed-upon price.^[2]
• Under the all-or-none contract, the underwriter agrees either to sell the entire offering or to cancel the deal.^[2]

Stand-by underwriting,^[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.^[4]

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