Opinion of counsel for underwriters: Overview, definition, and example
What is an opinion of counsel for underwriters?
An opinion of counsel for underwriters is a formal legal statement provided by a lawyer representing the underwriters (typically investment banks or financial institutions) involved in a securities offering, such as an initial public offering (IPO) or bond issuance. This opinion confirms that the offering documents comply with applicable laws and regulations and that the securities being offered are legally valid and binding. It is a key part of the due diligence process and provides legal assurances to the underwriters, investors, and other stakeholders involved in the offering.
For example, in an IPO, the counsel for the underwriters might provide an opinion confirming that the registration statement filed with the Securities and Exchange Commission (SEC) complies with U.S. securities laws and that the shares being offered are legally transferable to investors.
Why is an opinion of counsel for underwriters important?
The opinion of counsel for underwriters is important because it provides legal reassurance that the securities offering is conducted in compliance with relevant laws, reducing the risk of legal challenges or regulatory issues after the offering. This opinion is part of the underwriters' due diligence process and helps mitigate their legal liability by confirming that they have taken necessary steps to ensure the offering is legally sound.
For underwriters, obtaining an opinion of counsel helps protect them from potential legal claims and ensures the securities can be legally sold to investors. For investors, the opinion offers confidence that the offering complies with regulatory requirements and that the securities being purchased are valid.
Understanding opinion of counsel for underwriters through an example
Imagine a company is planning to issue shares through an IPO. The underwriters are responsible for facilitating the offering, and as part of their due diligence, they seek an opinion of counsel from their legal team. The counsel reviews the offering documents, such as the registration statement and prospectus, and provides an opinion confirming that these documents comply with the Securities Act of 1933 and that the shares are legally valid for sale to the public.
In another example, a company issuing bonds through an underwriter asks for a legal opinion confirming that the bonds comply with the relevant securities laws. The counsel for the underwriters provides an opinion stating that the bonds are legally enforceable and that the issuance complies with all necessary regulations, reducing the underwriters’ exposure to legal risks.
An example of an opinion of counsel for underwriters clause
Here’s how an opinion of counsel for underwriters clause might appear in an underwriting agreement:
“The Underwriters shall have received an opinion from counsel for the Company, reasonably satisfactory to the Underwriters, to the effect that (i) the Registration Statement and the Prospectus comply with the applicable provisions of the Securities Act of 1933 and the rules and regulations promulgated thereunder, (ii) the securities being offered are validly issued and legally transferable, and (iii) the execution and delivery of the underwriting agreement by the Company has been duly authorized and constitutes a valid and binding obligation of the Company.”
Conclusion
An opinion of counsel for underwriters is a critical legal document in securities offerings that provides assurance about the legal validity and regulatory compliance of the offering. This opinion helps protect underwriters from potential legal risks and assures investors that the securities being offered are legally sound and compliant with applicable laws.For underwriters, the opinion is an essential part of the due diligence process, ensuring that they fulfill their legal responsibilities. For investors, it provides confidence that the offering is legally legitimate and complies with the relevant regulations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.