Standby Underwriting

You run a chain of scalp massage parlors. Your business has grown over the years, and now you're ready for an initial public offering: the sale of stock to the general public. To conduct the IPO, you hire an underwriter...a bank or investment firm that will manage the process of making your shares public.

You reach a standby underwriting agreement. This structure means that the underwriter will buy any shares it can’t sell in the IPO. So if the offering is for 3 million shares and the underwriter can only place 2.9 million with investors, it will buy the remaining 100,000 itself. The underwriter puts themselves on "standby" to jump in and purchase any remaining shares, guaranteeing that you'll sell all the stock you want to at the offering price.