Learning about financial instruments is at times like finding one’s way around a knotty puzzle and share warrants do not remain left behind. Are they stocks? Are they options? Or perhaps they are some special strategic tools used by company to attract investors? In this post, we clarify share warrants systematically but simply such that when it comes the next time, some piece of the financial puzzle should be easily done. Let’s begin!
Imagine this: You’re sitting in a posh restaurant in 1850s New York. A waiter presents you with a delectable meal but informs you, “You don’t have to pay now—just hold your plate for later at today’s price.” That’s basically what share warrants allowed investors to do back then. Sounds like an economic delight, isn’t it?

But What are Share Warrants?

A share warrant is a financial instrument issued by a company that entitles the holder to buy shares at a specified price within a specified time period. Essentially, it is a contract to buy shares in the future.

How Do Share Warrants Function?

When a company issues a share warrant, the investors have an option to buy shares at an exercise price prior to the expiry of the warrant. If the market price rises above the exercise price, the investor can buy shares at the lower price and can gain a profit. If the market price is still below, the warrant can expire worthless.

Seems interesting, but if these share warrants were a superhero, what would their powers be?

Main Characteristics of Share Warrants:

  • No Immediate Ownership: Give the right to purchase shares in the future alone.
  • Leverage & Lower Upfront Cost: Exposure to stock without investing the full amount upfront.
  • Fixed Expiry Date: To be exercised within a particular timeframe.
  • Dilution Effect on Shareholders: Additional shares dilute outstanding shares when exercised.

Why Would Businesses Issue such Share Warrants?

  • Raising capital without diluting the available equity.
  • Attracting strategic investors.
  • Promoting long-term investment.

Let’s make things even clear by taking a very simple example, because nothing explains finance better than numbers.

Example: Suppose Company ABC issues share warrants under which investors can purchase shares at ₹200 per share within two years, and the share goes up to ₹300. An investor can purchase at ₹200 and sell at ₹300 and make a profit of ₹100 per share.

Let us understand how and when did this instrument come into picture.

Share Warrant History: Origin & Evolution

Share warrants date back to the early 19th century when corporations sought to raise capital without instantly diluting ownership. Initially issued in the United States and Europe, they served as investment incentives and a means to secure long-term funding. Over time, they gained widespread acceptance, particularly in developed economies.

Global History of Share Warrants

19th Century – First Use in America & Europe:

  • Shares warrants were applied by companies to raise capital without issuing stocks promptly.
  • The railroads and industrial companies used them to enlist long-term shareholders.

Early 20th Century – Expansion, Growth & Control:

  • There was formal introduction by the New York Stock Exchange (NYSE) and London Stock Exchange (LSE).
  • Warrants came with debentures and bonds to entice investors.

Post-World War II – Growth in Economy & Popularity of Warrants:

  • Share warrants were a usual financing instrument in post-war economic development.
  • Greater utilization in infrastructure and technology investments.

Late 20th Century – Development of Equity Derivatives & Structured Finance:

  • Equity derivatives minimized the usage of share warrants.
  • They were still utilized by companies in convertible securities and strategic transactions.

21st Century – Stricter Regulatory Requirements & Strategic Application:

  • Regulatory authorities such as SEBI (India), SEC (USA), and FCA (UK) enforced tighter rules of compliance.
  • Firms now issue merger, acquisition, and structured finance warrants instead of general-purpose fundraising.

Of course, there must have been a reason for issuing them.

Why Were Share Warrants Issued Initially?

  • Encouraging Investment: Offered investors a lower-risk form of stockholding.
  • Raising Capital Without Immediate Dilution: Enabled companies to raise funds without diluting outstanding shares.
  • Strategic Financing for Expansion: Employed in massive industrial and infra projects.
  • Mergers & Acquisitions: Used as sweeteners to enhance value propositions.
  • Financial Market Stabilization: Governments and institutions employed warrants to provide liquidity during crises (e.g., 2008 Global Financial Crisis).
  • Economic Booms: Attracted investors during expansion periods, with opportunities for long-term investments.

There were several trends relating to these Share Warrants all over the world, what about our country?

Evolution of Share Warrants in India

  • Pre-Companies Act, 1956: It was widely used without strict regulations and sometimes was misused.
  • Companies Act, 1956: Sections 114 and 115 permitted public companies to issue share warrants against fully paid-up shares.
  • Companies Act, 2013: Eliminated share warrant provisions, making SEBI regulations obligatory.
  • SEBI Reforms (2015-2025): Strengthened transparency and compliance, making warrants a key tool in structured deals and promoter funding.

Major Judicial Interpretations & Landmark Cases

  • SEBI vs. Sahara (2012):
    • Supreme Court ruled Sahara’s issuance of optionally fully convertible debentures (OCDs) illegal for bypassing SEBI regulations.
    • Strengthened SEBI’s authority over financial instruments, including warrants.
  • SEBI vs. Pan Asia Advisors (2015):
    • SEBI imposed fines for misuse of share warrants in manipulative transactions.
    • Enhanced surveillance on warrant-based financial activities.

Amendments relating to Share Warrants seen in the Indian Parliament:

Although there has been no specific bill passed for share warrants, there are several amendments impacting their regulation:

  • The Companies Act, 2013:
    • Repealed Sections 114 & 115 of the Companies Act, 1956, removing unrestricted issuance of share warrants.
    • Introduction of stricter SEBI compliance and governance frameworks.
  • The Securities Laws (Amendment) Bill, 2014:
    • Power to regulate securities was strengthened, including share warrants.
    • Norms regarding investor protection and disclosure were strengthened.
  • Finance Acts (Over several Years):

Altered taxation schemes, such as capital gain tax treatment on share warrants.

For real-time updates on pending or new legislation, visit Lok Sabha Bills or Rajya Sabha Bills.

Now that we know the past, present in order to determine the future isn’t it important to know actually who are currently the users or who may turn to be the potential users of this document?

Who May Issue and Hold Share Warrants?

  • Public Companies: Only listed companies can issue them.

Can Private Companies issue them?

  • Can’t issue share warrants as per the Companies Act, 2013.

 Typically, who holds these instruments?

  • Institutional & Retail Investors: Usually available to institutional investors and high net-worth individuals.

And what is their tradability?

  • Tradability: Certain warrants are tradable in secondary markets subject to regulations.

Wondering what is the regulatory requirements? Everything is better when followed by rules, here you go.

SEBI Compliance Checklist for Issuance of Share Warrants

  • Board & Shareholder Approval

There is to be a special resolution by the company general meeting to approve the issue of share warrants.

The resolution must specify the price, terms of conversion, and lock-in period.

  • Pricing Guidelines

The exercise price of share warrants should be fixed on the basis of the Volume-Weighted Average Price (VWAP) of the shares of the company:

For listed companies: Determination of price is based on the last two weeks’ or 26 weeks’ average VWAP, whichever is higher.

For preferential allotment: SEBI price norms.

  • Lock-in Period

If it is issued to promoters, the minimum lock in period is one month from the date of allotment.

For non-promoters, the lock-in period usually is six months.

  • Conversion Timeline

Share warrants are to be converted into equity shares within 18 months from the date of allotment.

They will lapse if not exercised during this period, and the company forfeits the advance payment made.

  • Requirement of Upfront Payment

The investors are required to pay at least 25% of the issue price of the warrant at the time of allotment.

The balance amount is to be paid on exercise of the warrant.

  • Disclosure & Reporting Requirements

Companies are required to report share warrant issue details in their quarterly and annual statements.

Any material variations in terms, price, or exercise conditions need to be disclosed to stock exchanges and SEBI.

  • Restrictions on Trading

Share warrants are generally not freely transferable except according to stock exchange regulations in most instances.
Secondary market dealing in warrants attracts regulatory approvals.

  • SEBI & Companies Act Regulations

Issuance has to be in accordance with:

SEBI (ICDR) Regulations, 2018 (for preferential allotment)

Companies Act, 2013 (for public issue restrictions)

Listing Obligations & Disclosure Requirements (LODR), 2015 (for listed companies)

Thinking that there are too many compliances? What if they are not followed?

Penalties for Non-Compliance

  • Monetary fines and revocation of issuance.
  • Legal action under the SEBI Act, 1992.
  • Promoters may be blacklisted from accessing capital markets.

Seems like a useful instrument indeed, but wait what about the taxation regulation?

Taxation of Share Warrants

Here’s a table summarizing the taxability of share warrants in India at different stages:

Event Tax Treatment Tax Rate
Issuance of Share Warrants No tax liability at the time of issuance. N/A
Exercise of Share Warrants (Conversion into Shares) Considered as a capital asset acquisition; on sale, tax is applicable. N/A at exercise
Sale of Shares After Exercise Subject to Capital Gains Tax (CG) it is based on holding period. See below
Short-Term Capital Gains (STCG) (Holding ≤ 1 year) If shares are sold within 1 year of exercise, they are taxed under STCG. 15%
Long-Term Capital Gains (LTCG) (Holding > 1 year) LTCG tax applies when shares are sold after 1 year. 10% (if gains exceed ₹1 lakh)
Sale of Warrants Before Exercise Treated as transfer of a capital asset, subject to CG. STCG (as per tax slab) or LTCG (20% with indexation)
Transfer of Warrants Without Consideration (Gift, Inheritance, etc.) Taxable in the hands of the recipient if gifted (unless exempt under Section 56(2)(x)). Taxed as “Income from Other Sources” if value > ₹50,000

Final Thoughts: Are Share Warrants a Good Investment?

Share warrants are a great investment instrument, delivering leverage and possible reward with lower upfront capital outlay. However, investors need to very carefully weigh up the risk involved and have certainty of understanding about regulatory compliance prior to making any investment. This blog does not serve as a financial advice.

Why Choose InCorp Global?

Navigating complex financial instruments like share warrants requires expertise, precision, and regulatory knowledge. We stand as a trusted partner, offering deep insights, strategic guidance, and compliance expertise. With a strong track record in investment banking, regulatory advisory, and structured finance, we empower businesses and investors to make informed decisions. Whether it’s structuring deals, ensuring regulatory adherence, or unlocking growth opportunities, we are your partner in financial excellence.

Authored by:
Nishika Munial | Risk Assurance


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