Note on Underwriters, Dividends And Managing Agents

by • 06/01/2013 • GeneralComments (0)392

Q.16. Write a note on the following:

1. Underwriters

2. Dividends

3. Managing Agents

 

Ans: 1. UNDERWRITERS

Agents or brokers that are appointed to set the shares of the new company are called underwriters. They make the payment of subscribed shares in full to the company and sell them later on to the public. The risk of the shares is transferred to the underwriters. They receive commission from the company.

 

UNDERWRITING

It is a contract made by the promoter of the company with the agents or brokers for the sale of shares.

 

IMPORTANCE

 

1. HELPERS TO THE PROMOTERS

The underwriters are very helpful for the promoters in starting the project.

 

2. BUSINESS EXPANSION

Business can be enlarged with the assistance and struggle of underwriters.

 

3. CAPITAL ASSURANCE

Underwriting provides required capital assurance to the promoters. So they enlarge the business according the provision of capital.

 

4. EXPERIENCE OF UNDERWRITERS

A company also enjoys the benefit of specialized knowledge and experience of the underwriters.

 

5. STATUS OF THE COMPANY IMPROVES

If the underwriters are capable then they will improve the status and goodwill of the company.

 

6. DISSOLUTION OF UNDERWRITING

The underwriting council can be dissolved the securities are sold in the market.

 

2 DIVIDENDS

Dividends are a part of the profits of the company. Dividends of the trading company are distributed among the members in proportions to their shares at the end of the financial year. It should be never paid out of the capital. The directors decide to divide the rate of dividend at the end of the financial year. They may divide the whole profit or they may not distribute the profit, it depends upon their own decision.

The shareholders want to get maximum return on their capital. A successful company always declares regular rate of dividend to the shareholders.

 

DIVIDENDS PAYMENT RULE:

 

1. PAYMENT OUT OF THE PROFIT

Dividend should be paid out of the profits of the company and not out of the capital.

 

2. NOT A WHOLE PROFIT

It is not necessary that a company may divide the whole profit among the shareholders.

 

3. DIVIDEND ON BEARER SHARES

The dividend on the bearer shares is paid on the production or a coupon to the bankers of the company.

 

4. DIVIDEND ON REGISTERED SHARES

The registered shareholders get the payment of dividend by means of a dividend warrant from the company bankers.

 

5. DIVIDEND ON ORDINARY SHARES

Dividend on ordinary shares changes according to the profits made by the company every year.

 

6. PAYMENT IN CASH

Dividend must be paid in cash.

 

7. LIABILITY OF THE COMPANY

A dividend becomes the liability of the company from the date of declaration.

 

8. PROPORTION OF PROFIT

A subject to the provision of Articles Company should pay dividend to the shareholder out of profit in proportion to their shares.

 

3. MANAGING AGENTS

To look after the business of company managing agents are appointed. According to the

Section 206 of Companies Ordinance 1984 a company is not authorized to appoint the managing agent. If the company is controlled by the federal government restriction is not there.

 

IMPORTANE OF MANAGING AGENTS

 

1. MANAGEMENT

The managing agents play very effective role in settling the affairs of the company.

 

2. SOLVE THE FINANCE PROBLEM

The managing agents are very useful for promoting the finance of the company. The major portion of the capital is raised through personal efforts of the managing agents.

 

3. CREDIT FOR THE COMPANY

They attract the funds in the form of debentures. They supply the fixed and working capital.

 

4. DUTY OF UNDER WRITNG

The managing agents also perform the functions of underwriters and furnish the necessary capital by using all available resources.

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