Equity warrants—private company

The following Corporate practice note provides comprehensive and up to date legal information covering:

  • Equity warrants—private company
  • What is a warrant?
  • What is an equity or share warrant?
  • Why equity warrants?
  • Structure of equity warrants
  • Key commercial issues
  • The number and class of warrant shares
  • Timing of exercise
  • Transferability
  • Information and other rights
  • More...

Equity warrants—private company

This Practice Note provides an overview of equity warrants in the context of private company investment. Listed equity warrants and debt warrants (of any nature) are beyond the scope of this note.

What is a warrant?

A warrant is a contractual financial instrument that allows the holder special rights to buy securities. They are discretionary rights that expire. In many respects, they are similar to options.

What is an equity or share warrant?

An equity warrant is a financial instrument under which a company grants a contractual right (but not an obligation) to a third party (the warrantholder) to subscribe for a specified class of shares in that company (ie equity securities). Under a debt warrant, the subscription right is over debt, rather than equity, securities.

Equity warrants, sometimes referred to as share warrants, should be distinguished from bearer shares, or 'share warrants to bearer', which, until being abolished under the Small Business, Enterprise and Employment Act 2015, were unregistered shares owned by whoever physically held the instrument. Companies have been prohibited from issuing bearer shares since 26 May 2015.

The instrument may be created as a stand-alone document or as part of an acquisition finance package such as a leveraged or management buyout (MBO) or a refinancing, with warrants granted to mezzanine lenders. The warrantholder does not generally pay for the warrant. Rather, the instrument sets

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