Question

New Age Oil and Gas Corp. brings its private share offering to market and retains AllCan Investments Inc. as the underwriter for the offering. AllCan agrees to sell as many shares of New Age at $20.00 per share as possible. Which type of underwriting is this?

Answer 1

The type of underwriting described is a 'best efforts underwriting,' where the underwriter, AllCan Investments Inc., sells as many shares as possible without guaranteeing the sale of the entire offering.

Step-by-step explanation:

When New Age Oil and Gas Corp. brings its private share offering to market with AllCan Investments Inc. acting as the underwriter, and AllCan agrees to sell as many shares at $20.00 per share as possible, this arrangement is known as a best efforts underwriting. Unlike a firm commitment underwriting, where the underwriter buys all the shares and resells them to the public, in a best efforts underwriting, the underwriter agrees to sell as many shares as possible without guaranteeing the total offering will be sold. This type of underwriting reduces the risk for the underwriter since they are not required to purchase any unsold shares.