Payment of Underwriting Commission :
Section 40 (6) of the Companies Act 2013, provides that a company may pay commission to any person in connection with the subscription or procurement of subscription to its securities, whether absolute or conditional, subject to the following conditions which are prescribed under Companies (Prospectus and Allotment of Securities) Rules, 2014:
(a) the payment of such commission shall be authorized in the company’s articles of association;
(b) the commission may be paid out of proceeds of the issue or the profit of the company or both;
(c) the rate of commission paid or agreed to be paid shall not exceed, in case of shares, five percent (5%) of the price at which the shares are issued or a rate authorised by the articles, whichever is less, and in case of debentures , shall not exceed two and a half per cent (2.5 %) of the price at which the debentures are issued, or as specified in the company’s articles, whichever is less;
(d) the prospectus of the company shall disclose –
– the name of the underwriters;
– the rate and amount of the commission payable to the underwriter; and
– the number of securities which is to be underwritten or subscribed by the underwriter absolutely or conditionally.
(e) there shall not be paid commission to any underwriter on securities which are not offered to the public for subscription;
(f) a copy of the contract for the payment of commission is delivered to the Registrar at the time of delivery of the prospectus for registration.
Thus, the Underwriting commission is limited to 5% of issue price in case of shares and 2.5% in case of debentures. The rates of commission given above are maximum rates. The company is free to negotiate lower rates with underwriters.