Simple English definitions for legal terms
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Standby underwriting is when someone agrees to buy any unsold shares of a new investment that is being offered to the public. This is done for a fee and is a way to ensure that the investment will be fully sold. It is one of three types of underwriting, which is when someone takes on the risk of insuring or buying a new investment.
Definition: Standby underwriting is a type of underwriting where the underwriter agrees to buy any unsold shares from the issuer after a public offering, for a fee.
Underwriting is the act of assuming a risk by insuring it or agreeing to buy all or part of a new issue of securities to be offered for public sale. There are three types of underwriting:
For example, if a company wants to issue 100,000 shares of stock to the public, they may hire an underwriter to help with the sale. If the underwriter is doing a standby underwriting, they will agree to buy any shares that are not sold to the public. So, if only 80,000 shares are sold, the underwriter will buy the remaining 20,000 shares from the company.
This type of underwriting provides a safety net for the issuer, as they are guaranteed to sell all of their shares, even if the public is not interested in buying them. However, it also comes at a cost, as the underwriter charges a fee for this service.