What is ‘solidarity’

In solidarity, also called joint and several liability is a legal term describing a limited group of people bound together by contract. This is most often seen in the context of the loan. The phrase is also used in a syndicate of underwriters to refer to a variety of responsibility of individual companies to sell a particular part of the unsold new issue.

Breaking down the ‘solidarity’

In a legally binding document, jointly determines the level of party responsibility. The term is most often used in the context of joint action taken by two or more people can be seen in loan documentation and power of attorney. In its purest form, joint and several means that all the parties to the contract are obliged to perform all actions necessary in accordance with the agreement, with any proportionality.

For example, if a Bank lends $ 100,000 for two people, jointly and individually, then each person listed on the loan documents is responsible for the repayment of the total amount of the loan to the Bank. To recover, the Bank may choose with whom to secure the loan in case of default. The person with whom the Bank seeks action against, probably, there are some requirements to another person or entity, but only after paying the Bank in full. The Bank has the ability to sue the partner, from whom he feels he will have the highest probability of full repayment.

Joint liability may also arise due to certain laws. For example, it is common for employers to be liable for damage caused by their employees. For example, if on the site there is a rupture of a pipe in the house, his employer may be jointly and severally liable for the damage.

Solidarity in the securities industry

The expression “solidarity” is also widely used in the securities industry in the context of the underwriting of bonds or a new share issue. In such cases, the firm that will agree to sell part of the overall problem, responsible for agreeing on the part and the unsold securities.

The underwriter, who jointly and severally agreed to a 30% stake in the sale of a new issue must sell 30% of the remaining unsold part, even if the insurer has already sold more than this amount in the initial sale. All the members of the syndicate are responsible for any remaining shares.

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