UNDERWRITING. An underwriter is a person who, when an issue of shares is being made by a company, agrees, in consideration of a certain commission, to apply for, or find someone else to apply for, a certain number or all of the shares which are not applied for by the public. An underwriter should, of course, be financially able to fulfil his agreement if necessary. If the shares are not favoured by the public, the underwriters may be saddled with a heavy weight of them, whereas if the issue is eagerly taken up they may receive the commission without having to apply for any shares at all.
An agreement, under hand, to underwrite requires a sixpenny stamp. If under seal the duty is ten shillings.
The provisions of the Companies (Con solidation) Act, 190S, are as follow : " 89. (1) It shall be lawful for a company to pay a commission to any person in consideration of his subscribing or agreeing to subscribe, whether abso lutely or conditionally, for any shares in the company, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in the company, if the payment of the commission is authorised by the articles, and the commission paid or agreed to be paid does not exceed the amount or rate so authorised, and if the amount or rate per cent. of the commission paid or agreed to be paid is " (a) In the case of shares offered to the public for subscrip tion, disclosed in the pros pectus ; or " (b) In the case of shares not offered to the public for subscription, disclosed in the statement in lieu of pros pectus, or in a statement in the prescribed form signed in like manner as a state ment in lieu of prospectus and filed with the registrar of companies, and, where a circular or notice, not being a prospectus, inviting subscription for the shares is issued, also disclosed in that circular or notice.
" (2) Save as aforesaid, no company shall apply any of its shares or capital money either directly or indirectly in payment of any commission, discount, or allowance, to any person in consideration of his subscribing or agreeing to subscribe, whether abso lutely or conditionally, for any shares of the company, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in the company, whether the shares or money be so applied by being added to the purchase money of any property acquired by the company or to the contract price of any work to be executed for the company, or the money be paid out of the nominal purchase money or contract price, or otherwise.
" (3) Nothing in this Section shall affect the power of any company to pay such brokerage as it has heretofore been lawful for a company to pay, and a vendor to, promoter of, or other person who receives payment in money or shares from, a company shall have and shall be deemed always to have had power to apply any part of the money or shares so received in payment of any com mission, the payment of which, if made directly by the company, would have been legal under this Section.
" 90. Where a company has paid any sums by way of commission in respect of any shares or debentures, or allowed any sums by way of discount in respect of any deben tures, the total amount so paid or allowed, or so much thereof as has not been written off, shall be stated in every balance sheet of the company until the whole amount thereof has been written off." The total amount of sums, if any, paid by way of commission in respect of any shares or debentures must be included in the summary to be sent to the registrar. (See Section 26 under REGISTER OF MEMBERS OF COMPANY. See also Section 81, s.s. 1 under PROSPECTUS.) (See CONIPANIES.)