A syndicate is a group of individuals or businesses that come together with a common interest, such as engaging in a business transaction. When one business does not have enough capital to engage in a certain business transaction, a group of firms may come together and form a partnership for a brief period of time. Once the project has been completed, the syndication will be dissolved. Many times when a large business investment or loan takes place, one company will not have enough funds and resources to carry out the transaction on its own.
Syndication will occur when several companies combine their funds in order to pay the loan or investment. This also means that all the companies involved in the syndication will share the reward and risk of the investment.
In a business transaction that is considerably risky, it often makes sense to engage in a syndicate. For example, when a new stock is introduced, several stock brokerage companies may form a syndicate in order to sell the shares. The cost of the stock may be too high for one firm to handle on its own. Once the stocks are sold, the syndication among the companies will be dissolved.
There are many different types of businesses that will engage in syndication. Oftentimes, a group of insurance companies will form a syndication in order to write an insurance policy for someone. If the venture would be too risky for one company to engage in on its own, it can share the risk among the members of the syndicate.
Banks may also come together to form a syndicate to engage in a business investment. If a person wants to start a business, and is looking for a loan, a bank may choose to engage in a temporary partnership with other banks in order to finance this person’s business venture.
Broadcasting industries, such as television and newspapers, also engage in syndication. One company will buy the rights of a form of entertainment, and then will allow other entertainment companies to produce it.