A warrant is similar to a stock option but is not exactly the same. Warrants are derivative contracts that primarily give the owner the right, but not the obligation to buy stock in a corporation at a defined price and within a defined period of time. Warrants are issued by the company itself as opposed to a third party. Unlikely, options, the issuance of warrants dilutes equity. The exercise of options applies to already issued stock, so it is not dilutive.

Warrants are sometimes issued in connection with the sale of a corporation. Sometimes the seller of a business will be issued warrants as part of the negotiation of the sales price of a corporation. This provides the seller the ability to exercise the warrants, thus providing the seller with additional value if the acquiring company is successful.


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