Underwriting agreement is a contract between a business issuing public stock and their underwriter.
Underwriting agreement involves a corporation issuing new securities, or public stock, and the lead underwriter of the syndicate. A syndicate includes a group of investment banks who jointly underwrite and distribute a new security offering. They are also known as a group of investors who work together when investing into a company.
The underwriting agreement will highlight four key points related to the shares. The first point is that it clearly defines the public offering price. This is the price that investors can purchase shares in a company for. The second main point of the underwriting agreement is that it defines the underwriting spread. In simpler terms the underwriting spread is the fee charged by a syndicate, equal to the difference between the gross sales to investors and the net proceeds received by the issuer.
A third point brought up in this agreement is the net proceeds to the issuer. The fourth and final point of an underwriting agreement is the settlement date, or the closing date.
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