Advantages of Share underwriting contract : Following are the advantages of share underwriting contract:
(1) Removes uncertainty : After having entered in to underwriting contract there is no uncertainty among the promoters of the company to get the amount of Minimum Subscription.
(2) Appropriate advice The under writer Brokers being experts of share market give appropriate advice to the company. This leads to increase in the confidence of investors.
(3) Safety of Investor’s money: Before taking liability the underwriter Brokers make necessary investigation about the condition and future of the company and thereafter enter in to underwriter contract. Therefore the investors are confident about the safety of their money.
(4) Advantage of goodwill of underwriter Brokers : When the company makes underwriting contract with reputed underwriter Brokers. Company receives benefit of their reputation. Investors are attracted to invest their money reading the names of reputed underwriter brokers in the prospectus.
(5) Reduce advertisement expenditure : If the company does not enter in to the contract of share underwriting, it will have to give more advertisement in the Newspapers and television which is very costly, As the share underwriter takes the responsibility as per the contract, there is less expenditure for advertisement.