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UNderwriting Commission...!?

Whizkid (student) (640 Points)

21 December 2009

Guys,

While calculating underwrter's commission....Should we take no. of shares multiplied by face value or including premium and then multiply it to percentage of commission..!?! In different sums,...diff things have been taken...So confusin! :(

Jus help out...thnks! Reply asap..

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Surendra Agarwal (MANAGER FINANCE AND BUSINESS PLANNIN) (289 Points)
Replied 21 December 2009

on face value

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(Guest)

Yesterday itself I've solved Underwriting of Shares and you have to include premium to the face value and multiply with the no. of shares and with the percentage i.e., 5% Underwriters Commission for Underwriting of Share..!

kushal ( ) (88 Points)
Replied 20 January 2010

I agree with CA student above me. Section 76 of the companies act is crystal clear about this which m writing here:-

Section 76 of Companies Act (POWER TO PAY CERTAIN COMMISSION AND PROHIBITION OF PAYMENT OF ALL OTHER COMMISSIONS, DISCOUNTS, ETC.):-

1) A company may pay a commission to any person in consideration of -

(a) his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in, or debentures of, the company, or

(b) his procuring or agreeing to procure subscripttions, whether absolute or conditional, for any shares in, or debentures of, the company, if the following conditions are fulfilled, namely :-

(i) the payment of the commission is authorized by the articles;

(ii) the commission paid or agreed to be paid does not exceed in the case of shares, five per cent of the price at which the shares are issued or the amount or rate authorized by the articles, whichever is less, and in the case of debentures, two and a half per cent of the price at which the debentures are issued or the amount or rate authorized by the articles, whichever is less;

so if I am not wrong the words in the act are ISSUE PRICE which includes premium too.

one more thing is underwriter's risk is largely dependent on Issue Price than face value. Hence while computing his commission issue price should be taken (i.e. including premium if any)

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