by When a company issues shares/debentures to the public, underwriters agree to subscribe to the portion of shares not taken up by the public. This ensures full subscription of the issue.
If the public does not subscribe fully, the underwriter(s) must take up the remaining (unsubscribed) shares. Sometimes, the liability is divided among multiple underwriters, and they may have firm underwriting, i.e., they agree to take up a specific number of shares irrespective of public subscription.
Steps to Prepare the Statement:
Total Issue of shares.
Less: Marked Applications (applications attributed to specific underwriters).
Less: Unmarked Applications (applications not attributed to any underwriter; divide in agreed ratio).
Add: Firm Underwriting (shares underwritten on firm basis — always added).
Compute Net Liability of each underwriter:
Gross Liability – Marked Applications – Share of Unmarked Applications + Firm Underwriting.
Example
Let’s assume a company issues 1,00,000 shares, underwritten as:
| Underwriter | % of Issue | Firm Underwriting |
|---|---|---|
| A | 40% | 2,000 shares |
| B | 35% | 1,500 shares |
| C | 25% | 1,000 shares |
| Application Type | A | B | C | Unmarked |
|---|---|---|---|---|
| Marked | 20,000 | 18,000 | 12,000 | 20,000 |
Statement of Underwriters’ Liability:
| Particulars | A | B | C | Total |
|---|---|---|---|---|
| Gross Liability (as per %) | 40,000 | 35,000 | 25,000 | 1,00,000 |
| Less: Marked Applications | 20,000 | 18,000 | 12,000 | 50,000 |
| Less: Unmarked (20,000) | 8,000 | 7,000 | 5,000 | 20,000 |
| Net Liability before Firm | 12,000 | 10,000 | 8,000 | 30,000 |
| Add: Firm Underwriting | 2,000 | 1,500 | 1,000 | 4,500 |
| Final Liability | 14,000 | 11,500 | 9,000 | 34,500 |
Key Notes:
Unmarked applications are divided in the gross liability ratio (A:B:C = 40:35:25).
Firm underwriting is always added to the final liability, as it’s considered additional commitment.
