Underwriting commission is a payment made by a company to a broker issuing house or a bank in consideration for its undertaking to take up all or specified number of shares not taken up by the public. The commission is payable whether or not the shares are taken up by the public and may be in the form of shares and money.
• The payment is an integral part of an underwriting agreement.
• The provisions of the Companies Act enable Companies to pay a commission to any person in a consideration of his
o Subscribing for its shares.
o Agreeing to subscribe
o Procuring a subscription
o Agreeing to procure subscription
The payment of such commission may be absolute or conditional provided:
o It is authorized by the articles
o It does not exceed 10% of the price at which the shares are issued or the amount or rate authorized by the articles whichever is less.
o It is disclosed in the prospectus in the case of shares offered to the public.
State the circumstances under which a Company can pay an underwriting commission.
