Partial Underwriting :
(a) If a part of the issue of shares or debentures is underwritten only by one underwriter: In such a case, only a part of the whole issue, say 60% or 70% is underwritten only by one underwriter and so far as the balance 40% or 30% of the issue is concerned, the company itself is said to have underwritten the same. As such, the unmarked applications are treated as marked as far as the company is concerned.
In such a case, the gross liability of the underwriter will be that part of the issue of shares or debentures which is underwritten, say 60% or 70% and the net liability will be determined by deducting the marked applications (the applications sent through him) from the gross liability. Thus, the net liability will be determined as follows:
Net liability = Gross liability (say 60% or 70% of the issue) – Marked applications.
It is to be noted here that if the marked applications exceed or equal the number of shares or debentures underwritten the underwriter is free from his liability and cannot be called upon to take up any shares or debentures of the company. Similarly, if all the shares or debentures are subscribed the underwriter is free from his liability in spite of the fact the marked applications are less than the number of shares or debentures underwritten.
(b) If the part of the issue of shares or debentures is underwritten by a number of underwriters: In such a case only a part of the whole issue, say 60% or 70% or 80% is underwritten by a number of underwriters and so far as the balance 40% or 30% or 20% is concerned, the company itself is said to have underwritten the same. As such, the unmarked applications are treated as marked so far as the company is concerned.
In such a case, the method of determining the net liability of the respective underwriters is similar to the method discussed (a) above.