Underwrite Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Underwrite, written in plain English, along with examples of how it is used.

What is Underwrite?

(v). Underwriting is a mode of guarantee provided for fulfillment of uncompleted events for which underwriting agreement is executed. For example when a share or bond issue is underwritten, the underwriter has an obligation to purchase the portion of shares or bond which the public has not subscribed or are unsold

History and Meaning of Underwrite

Underwriting originated in the 17th century, where a group of wealthy individuals would share the risk of maritime trade by insuring ships and cargoes. Nowadays, underwriting typically refers to the process where an underwriter agrees to purchase a certain amount of a security before its public offering. This ensures that the issuer can raise a certain amount of capital and guarantees that the underwriter will be able to sell the securities to the public at a profit.

Examples of Underwrite

Company ABC hires an underwriter to sell bonds to the public. The underwriter may agree to purchase a certain amount of the bonds at a discount and then sell them to the public at a higher price.
Investment bank XYZ agrees to underwrite a public offering for company DEF. This means that they will purchase a certain amount of shares before they are offered to the public and then sell them to investors.
John Smith wants to start his own business and needs to raise capital. He hires an underwriter to help him issue shares of his company to investors.

Legal Terms Similar to Underwrite

Guarantee: A pledge or assurance that something will be fulfilled or a debt will be repaid, often provided by a third-party.
Securities: A financial instrument that represents ownership in a publicly-traded corporation or organization, such as stocks, bonds, or options.
Initial Public Offering (IPO): The first time a company offers its shares to the public, often underwritten by an investment bank.