01 05, 2022

Warrants vs. Stock Options

Growing pains are part of starting a new company. Knowledge of your company’s equity and how this affects not only your company but also the investors is important. One example of this is warrants and more specifically when to issue warrants vs stock options. Continue reading for a full breakdown of how stocks options and warrants are different.

Warrant’s Defined:

Founding a company you are probably familiar with stock options but what is a warrant? A warrant is an agreement between two parties that allows a party to obtain the other party’s stock at a given price for a period of time. Once a warrant is used, the party gets the shares in the company at the price agreed upon before regardless of what the market price is at that time.

Warrants Compared to Stock Options:

Warrants and Stock options are both contracts that allow holders the ability to sell or buy a company’s stock at a given price over a specific time period. The main difference between the two is the situations they are used in. This depends on the exercise prices and the parties involved.

Different in Parties Issues To:

Stock options are usually issued to people within the company such as employees and advisors or contractors. In these cases, they are used as compensation or incentive. Warrants are not usually issued to these service providers. Instead, warrants are given to third parties, such as investors, when starting a transaction (either commercial or financial).

Different Exercise Prices:

An exercise price is the price agreed upon that the stock or warrant will be purchased for. Generally, the set exercise price for warrants is much lower than for stock options. For stock options, the purchase price is based on fair market value. Warrants are mostly for non-compensatory purposes, therefore the price will be much lower than fair market value.

Take a look at the rest of Equa’s blogs for more information.

Copyright © 2022 Equa - All Rights Reserved. Version 36.4.1
This site is operated by Equa, Inc. (“Equa”), which is not a registered broker-dealer. Equa does not give investment advice, endorsement, analysis or recommendations with respect to any digital securities. All securities and digital securities managed by Equa platform are offered by, and all information related thereto is the responsibility of, the applicable issuer of such security or digital securities. Neither Equa, Equa Start nor any of its officers, directors, agents and employees makes any recommendation or endorsement whatsoever regarding any securities or digital securities on the Equa platform or app. Nothing on this website should be construed as an offer, distribution or solicitation of any securities or any digital securities. Equa does not provide custodial services in connection with any securities or digital securities.