When a company wants to go public and issue securities to the public, it needs an underwriter to help it with the process. An underwriter is an intermediary between the company and the investors. They help the company issue securities to the public by buying the securities from the company and selling them to investors.
However, before the underwriter can proceed with this process, it needs to sign a contract with the company. This contract is known as the underwriting agreement. It outlines the terms and conditions of the underwriter`s involvement in the offering of securities.
On the other hand, an agreement among underwriters (AAU) is a contract that underwriters enter into with each other. The AAU outlines the terms and conditions of their joint commitment to buy and sell the securities that the company is issuing. It also details the allocation of securities among themselves and any compensation for their involvement.
While the two agreements may seem similar, they have different functions and are meant for different audiences. The underwriting agreement is meant for the company and the underwriter, while the AAU is meant for the underwriters themselves.
The underwriting agreement is a legally binding contract between the company and the underwriter. It outlines the terms of the underwriting process, including the price of the securities, the underwriter`s commission, and the underwriter`s obligation to purchase the securities from the company. It also outlines the underwriter`s liability in case of any misrepresentations in the prospectus.
The AAU, on the other hand, is an agreement between underwriters themselves. It outlines their joint commitment to buying and selling the securities. It details the allocation of securities among themselves and any compensation for their involvement. It also outlines the underwriters` obligations to each other, such as their commitment to purchasing the securities and how they will handle any unsold securities.
In conclusion, while both the underwriting agreement and the agreement among underwriters play essential roles in the process of going public, they serve different functions. The underwriting agreement outlines the relationship between the company and the underwriter, while the AAU outlines the relationship between the underwriters themselves. Both agreements are necessary for a successful public offering.