Corporate Accounting and Auditing · Underwriting of Securities

Underwriting Liability: Partial and Full Underwriting

Updated 10 October 2026 · Fact-checked

Underwriting liability is the number of shares an underwriter must take up if the public does not subscribe. Start with gross liability (shares underwritten), deduct the underwriter's own marked applications, then credit unmarked applications in the ratio of gross liabilities. The balance is net liability. Multiply by issue price for the amount.

Understand Underwriting Liability: Partial and Full Underwriting

An underwriter agrees to take up shares or debentures that the public does not subscribe. The company pays a commission for this safety net. Your job in the exam is to find how many shares each underwriter must finally take.

In a fully underwritten issue, every share of the issue is underwritten. In a partly underwritten issue, only a part is underwritten and the rest is left to the public or the promoters. The underwriters are answerable only for their part.

Applications come in two kinds. A marked application carries the stamp or name of a particular underwriter. It counts only in favour of that underwriter and reduces only that underwriter's liability. An unmarked application carries no name. It is shared among all underwriters in the ratio of their gross liabilities.

Gross liability is what the underwriter would take if the public applied for nothing. Net liability is what remains after credit for marked and unmarked applications. The total of all net liabilities equals the shares of the underwritten portion that the public did not take, provided no underwriter's liability has been set to nil. If a liability was set to nil, recompute the check after the surplus has been redistributed.

If the question does not say how to split unmarked applications between the underwritten and non-underwritten parts of a partly underwritten issue, state your assumption clearly and apply it. The usual one is to split them in the ratio of underwritten shares to non-underwritten shares.

Key rules to remember

Gross liability: Gross liability = Shares underwritten by the underwriter; If the question gives percentages, apply them to the underwritten shares, not necessarily the whole issue.
Liability after marked applications: Liability after marked = Gross liability − Own marked applications; Deduct only that underwriter's own marked applications.
Unmarked applications: Unmarked applications = Total applications − Total marked applications; Unmarked applications are shared in the ratio of gross liabilities.
Net liability: Net liability = Gross liability − Own marked − Share of unmarked applications; Check: total net liability = Underwritten shares − Total applications for the underwritten portion. This holds only if no underwriter's liability was set to nil; otherwise recompute after redistributing the surplus.
Partial underwriting split: Unmarked for underwritten part = Unmarked × Underwritten shares ÷ Total issue; This means the unmarked applications are split in the ratio of underwritten to non-underwritten shares (3 : 1 in Kaveri, so the underwritten part gets 3/4, which is 90,000 ÷ 1,20,000). Use only when the question gives no other instruction; state it as an assumption.
Amount payable: Amount = Net liability in shares × Issue price; Issue price includes premium, if any.

How to solve Underwriting Liability: Partial and Full Underwriting questions

Use the same table layout for every problem. It keeps the marks safe even if a number goes wrong.

1Note the total issue, the shares underwritten, and each underwriter's share or percentage. Decide if it is full or partial underwriting.
2Find each underwriter's gross liability in shares.
3Separate total applications into marked (by underwriter) and unmarked: unmarked = total − marked.
4For a partial issue, split the unmarked applications between the underwritten and non-underwritten parts using the question's instruction, or the stated assumption.
5Deduct each underwriter's own marked applications from gross liability.
6Credit the unmarked applications meant for the underwritten part in the ratio of gross liabilities.
7If any underwriter's liability becomes negative, set it to nil and share the surplus among the others as the question directs, then recompute.
8Find net liability in shares, check that the total agrees, and multiply by the issue price for the amount.

Quickest way: Four-column table with a total check

When to use it: Use it for any problem with two to four underwriters and a clear instruction on unmarked applications.

Draw columns: Gross, Less marked, Less unmarked, Net. Add a Total row.
Fill Gross and Marked first. Compute the unmarked pool in one line.
Split the pool by the gross ratio and fill the Unmarked column.
Subtract across to get Net. Verify that total net = underwritten shares − applications for them (if no liability was set to nil).
Convert to rupees only at the end.

Common mistakes in Underwriting Liability: Partial and Full Underwriting

Sharing unmarked applications in the ratio of net liabilities or equally.
Students forget that the ratio is fixed by the original underwriting commitments.
Fix: Always use the ratio of gross liabilities, taken before any deduction.
Treating total applications as unmarked.
The question states total applications, and marked ones are included in that figure.
Fix: Compute unmarked = total applications − total marked before doing anything else.
Deducting one underwriter's marked applications from another's liability.
Students deduct the total marked figure from each person.
Fix: Deduct only the underwriter's own marked applications.
In partial underwriting, giving all unmarked applications to the underwritten part.
Students ignore the non-underwritten shares in the issue.
Fix: Apply the question's instruction. If none is given, split the unmarked applications in the ratio of underwritten shares to non-underwritten shares, so the underwritten part gets Unmarked × Underwritten ÷ Total issue (3 : 1 in Kaveri, i.e. 3/4 of the unmarked). Write the assumption.
Leaving a negative net liability in the table.
Credit from unmarked applications exceeds the gross liability less marked.
Fix: Show nil for that underwriter and share the surplus among the others in the ratio of their gross liabilities, as the question specifies.
Skipping the total check.
Students are short of time.
Fix: Spend ten seconds verifying that total net liability equals the shortfall of the underwritten portion. If any liability was set to nil, recompute the check after redistributing the surplus.

Worked examples

Example 1

Rohan Ltd issued 1,00,000 equity shares of ₹10 each, fully underwritten by A (50%), B (30%) and C (20%). Applications were received for 80,000 shares. These included marked applications: A 10,000 shares, B 8,000 shares and C 2,000 shares. Calculate the net liability of each underwriter in shares and in rupees.

Show the solution

Gross liability: A 50,000; B 30,000; C 20,000. Total 1,00,000. Ratio 5 : 3 : 2.
Total marked = 10,000 + 8,000 + 2,000 = 20,000. Unmarked = 80,000 − 20,000 = 60,000.
After marked: A 40,000; B 22,000; C 18,000. Total 80,000.
Unmarked credit in 5 : 3 : 2: A 30,000; B 18,000; C 12,000.
Net liability: A 40,000 − 30,000 = 10,000; B 22,000 − 18,000 = 4,000; C 18,000 − 12,000 = 6,000.
Check: total net = 20,000 = 1,00,000 − 80,000.
Amount at ₹10: A ₹1,00,000; B ₹40,000; C ₹60,000.

Answer: Net liability: A 10,000 shares (₹1,00,000); B 4,000 shares (₹40,000); C 6,000 shares (₹60,000). Total 20,000 shares (₹2,00,000).

Example 2

Kaveri Ltd offered 1,20,000 equity shares of ₹10 each. Of these, 90,000 shares were underwritten by X (60,000 shares) and Y (30,000 shares). Applications were received for 1,00,000 shares, including marked applications of X 12,000 and Y 8,000. Unmarked applications are to be split between the underwritten and non-underwritten portions in the ratio of shares underwritten to shares not underwritten. Find each underwriter's net liability.

Show the solution

Gross liability: X 60,000; Y 30,000. Ratio 2 : 1.
Marked = 12,000 + 8,000 = 20,000. Unmarked = 1,00,000 − 20,000 = 80,000.
Not underwritten = 1,20,000 − 90,000 = 30,000. Ratio underwritten : not underwritten = 90,000 : 30,000 = 3 : 1.
Unmarked for underwritten part = 80,000 × 3/4 = 60,000 (same as 80,000 × 90,000 ÷ 1,20,000). The other 20,000 relate to the non-underwritten part.
After marked: X 60,000 − 12,000 = 48,000; Y 30,000 − 8,000 = 22,000.
Unmarked credit in 2 : 1: X 40,000; Y 20,000.
Net liability: X 48,000 − 40,000 = 8,000; Y 22,000 − 20,000 = 2,000.
Check: applications for underwritten part = 20,000 + 60,000 = 80,000; shortfall = 90,000 − 80,000 = 10,000, which equals 8,000 + 2,000.
Amount at ₹10: X ₹80,000; Y ₹20,000.

Answer: Net liability: X 8,000 shares (₹80,000); Y 2,000 shares (₹20,000). Total 10,000 shares (₹1,00,000).

Exam tips

Write the assumption in one line when the question is silent on how unmarked applications are shared in a partial issue. Examiners reward a clear, consistent treatment.
Always show the table with Gross, Marked, Unmarked and Net columns. Step marks come from these columns even if the final figure is wrong.
Do the total check. A mismatch tells you immediately that the unmarked pool or the ratio is wrong, unless a liability was set to nil.
In MCQs, the trap is usually using total applications instead of unmarked, or the wrong ratio. Compute unmarked first.
Convert shares to rupees only if the question asks for the amount, and use the issue price including any premium.

Practice questions from Underwriting of Securities

Underwriting Liability: Partial and Full Underwriting: frequently asked questions

What is the difference between marked and unmarked applications?

A marked application carries the stamp of a specific underwriter and reduces only that underwriter's liability. An unmarked application carries no name and is shared among all underwriters in the ratio of their gross liabilities.

What is the difference between gross liability and net liability of an underwriter?

Gross liability is the number of shares the underwriter agreed to underwrite. Net liability is what remains after deducting the underwriter's own marked applications and share of the unmarked applications.

How is partial underwriting different from full underwriting?

In full underwriting, the whole issue is underwritten. In partial underwriting, only a part is, so underwriters are liable only for shortfall in that part. You must decide how the unmarked applications are split between the underwritten and non-underwritten portions.

What if an underwriter's liability turns out negative?

Show it as nil. The surplus applications are then shared among the other underwriters, normally in the ratio of their gross liabilities, and the table is recomputed. Follow any instruction given in the question.