Mention the role and responsibilities of underwriters in an issue of new capital.

Mention the role and responsibilities of underwriters in an issue of new capital. 

Ans. It is well known that a public company can not get a certificate to commence business unless it gets a minimum subscription which is 90% of its offered capital. Therefore, in case the company does not get sufficient number of applications, the entire effort from promotion to incorporation will go in vain. Therefore, to be on safer side, the companies make a contract with the brokers, bankers or investment companies that in case these shares remained under subscribed, these brokers, bankers or investment companies will buy these shares wither by others or by themselves. For such a commitment, they are paid an underwriting commission in return. Therefore, the role of underwriters is a kind of hedging against the risk of under subscription in lieu of underwriting commission.