Back Stop Law and Legal Definition

Back stop is the act of providing last-resort support or security in a securities offering for the unsubscribed portion of shares. To guarantee the amount received through an issue, the company will get a back stop from an underwriter or major shareholder to buy any of the unsubscribed shares.

For instance, an institution may announce that it will provide 100% back stop to a company's new issue up to $50 million. If the company only raises $35 million by placing the security with other investors, the institution will buy the remaining $15 million worth of stock.