Who are the persons that guarantee on a firm commitment the distribution and sale of securities by another company?

• A. Stockholders
• B. Members
• C. Underwriters
• D. Incorporators

Answer: (C)

The concept here is firm commitment underwriting. In this arrangement, the party that guarantees the distribution and sale of securities is the underwriter. They commit to purchasing the entire issue from the issuer at a set price and then selling the securities to the public. By taking on this obligation, the underwriter assumes the risk that some securities might not be sold at the expected price, but they are compensated with the underwriting spread for assuming that risk. This guarantees the issuer that the funds will be raised.

Stockholders are the owners of a company, not guarantors of its new securities distribution. Members and incorporators refer to participants in different organizational contexts, not to roles in guaranteeing a securities issue.