The corporation could possibly market its own securities directly and have the investment bank merely underwrite the issue by insuring the corporation that if the securities are not entirely absorbed in the open market the bank will take the remainder at an agreed price. For this service the issuing corporation pays the underwriting or guaranteeing bank a commission of from 2 per cent to 5 per cent. In the case of a large issue, a single bank may be unwilling to carry the entire amount, because of size and risk, and the bank forms an underwriting syndicate with several associates. For example, bank A underwrites an issue of $120,000,000 which a corporation wishes to sell directly to the public, and the bank forms a syndicate consisting of itself and banks B, C, D, and E. Bank A, acting as syndicate manager, underwrites to the amount of $40,000,000; B and C, $25,000,000 each; and D and E, $15,000,000 each. The corporation then offers the securities for sale, and if they are entirely disposed of, the underwriters receive their proportionate commission for insuring the sale of the issue, without being called upon to carry any portion themselves.

However, there are other ways of underwriting. For example, a purchasing syndicate may be organized to buy and to sell the securities. The X Y Z Railroad issues $10,000,000 first-mortgage bonds at 6 1/2 per cent at a par value of $100. A syndicate consisting of bank A as syndicate manager, and banks B, C, D, and E as underwriters, pools its resources or forms what is known as a joint account and buys the securities from the issuing corporation at a price of $97. From the time of this purchase to the final disposition of the securities, the issue must be "carried" or taken over by the buying syndicate, which must provide the corporation with an amount equal to the purchase price of the securities. Funds are usually borrowed from commercial banks or trust companies, which accept the securities themselves as collateral on this amount. The banks lend from 70 to 80 per cent of the total amount, while the underwriters furnish the remainder. When each underwriter receives a separate loan from its bank, the carrying of the issue is then said to be "divided," because each member is not liable for the borrowings of its associates, but only for its own obligation. In an "undivided" carrying, all members of the syndicate borrow jointly and are mutually liable for the full amount of the loan. As a matter of fact, the method of undivided carrying is mainly used at the present time. The members of an underwriting or purchasing syndicate may enter into different forms of agreements regarding the liability of members in selling the securities. The liability may be either "limited" or "unlimited." In a limited liability account each underwriter is responsible only for the amount which he himself has assumed. Under an unlimited liability agreement, profits are shared and losses borne corresponding to the proportion underwritten by each member and not with the amount of securities which each has sold. As an illustration of a limited liability, bank A has underwritten $500,000, but has sold only $300,000, and so it must take over the difference of $200,000 at the dissolution of the syndicate. On the other hand, with an unlimited liability, bank A has underwritten securities to the extent of one-tenth of the entire issue, or $500,000, and sells $600,000 of these securities. Other members of the syndicate are not as successful in their sales, therefore at the dissolution of the syndicate there is still a balance of $2,000,000. Although bank A has effected sales in excess of its subscription, nevertheless, it is compelled to take over additional securities to the amount of one-tenth of the balance, or $200,000. A purchasing syndicate usually consists of a few members only, while selling syndicates may consist of fifteen to twenty associates, or even hundreds, varying with the size of the issue.