Lead Managers should satisfy themselves about the netrvorth of underwriters and their outstanding eomnubtlellts. The underwriting agreement must be filed with stock exchanges. U nderwri dug Connnission and Brokerage. Undenvritmg comrrissio is payable by a company to the underwriters as a percentage of the issue price
of the shares underwritten, Brokerage IS the amount paid by a company to a broker for placing shares or for procuring subscription fo l shares. Brokerage is not a commission payable for underwriting shares. Unlike an underwriter, :a broker does not give any underta to the company to talk up shares or, debentures if the issue IS undersubscribed The broker does not take up share himself, but ordy procures intending purchasers -v. hot are willing to subscribe for shares. He gets brokerage for only those shares for which he procures subscription. Brokerage can be paid by a compamy in addition to mmdermiting comnussion and even on shares which are not offered to the public.
Maximum rates of Commission and Brokerage, Ser. 7G(I) of the Compames Act has la id down the maximum rates of unden.nti Zg commirsie u
INCORPORATION OF A COMPANY 73
an: be paid' a company. But no such maximum rate for brokerage has pros robed in the Act. However, subject to the provisions of the Act, the Government has from time to time issued orders fixing the revised tnaximttrh rues of commission brokerage and fees to managers of the issue.
Underwriting Commission. Under: Sec. 76(1) of the Act, a company pax- underwriting commission if the following conditions are fulfilled.
I. the payment of underwriting conunission is authorized by Articles;
2. the rate of commission does not exceed 5 per cent of the issue price in the case of shares and 2.5 per cent of the issue price in case of • debentures or the amount or rates authorised by the Articles, whichever is less,
3, the amount or rate of undenmriting commission is disclosed m the pnospectus or statement in lieu of prospectus,
4. the number of shares or debentures which the underwriters. have agreed to subscribe is similarly disclosed, and
5. of the underwribng contract is delivered to the Registrar at
. the time of delivery of the prospectus or statement in lieu of prospectus for registration.