Answer to Question #222836 in Accounting for jyoti

Question

How is Under Writing of Shares/Debentures beneficial for the issuing company? What are the provisions regarding Underwriting of Securities in the Companies Act 2013?

Answer 1

Under writing of shares or debentures is beneficial for the issuing company since it provides an assurance to the company that it will be able to raise the stipulated amount of capital by issuing of shares or debentures.

With the company having such assurance it can proceed to draw up its investment programme.

The Companies Act, 2013 places certain restrictions on the rate of commission and the conditions under which it can be paid. It provides that commission only at a rate authorized by the Articles, not exceeding 2½% of the issue price of debentures and 5% of issue price of shares, can be paid.