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Simple English definitions for legal terms
strict underwriting
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A quick definition of strict underwriting:
Strict underwriting is a type of standby underwriting where an underwriter agrees to buy any unsold shares from the issuer after a public offering. This means that the underwriter takes on the risk of buying any remaining shares that the public did not purchase. It is called "strict" because the underwriter has a strict obligation to buy these shares, even if they are not able to sell them to the public.
A more thorough explanation:
Strict underwriting is a type of underwriting where the underwriter agrees to buy any unsold shares remaining after a public offering. This is also known as standby underwriting.
For example, if a company is offering 1,000 shares to the public and only 800 are sold, the underwriter will buy the remaining 200 shares. The underwriter charges a fee for this service.
This type of underwriting provides a safety net for the issuer, as they are guaranteed to sell all of their shares. It also provides a level of security for investors, as they know that the underwriter will step in if there is a lack of demand for the shares.