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Exploring Share Warrants:

Opening Up New Horizons

Megha Makharia
Megha Makharia

Published on: May 27, 2024

Aakanksha Singhal
Aakanksha Singhal

Updated on: May 27, 2024

(25 Ratings)
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Introduction:

Investment options in the stock market encompass a diverse range of opportunities for investors to deploy their capital. Each investment option has its own characteristics, risk-return profile, and suitability for different investment objectives. Building a well-rounded investment portfolio often involves diversifying across multiple asset classes and investment strategies to manage risk and maximize returns over the long terms. Here are some key concepts:

What is share warrant?

In simple terms, a Share Warrant is like a ticket that gives you the right to buy shares of Company at a predetermined price. It is a type of financial instrument that allows the holder to purchase a specific number of shares directly from the company at a fixed price, usually within a certain time frame. Share warrants are often used as incentives for investors or employees, and they can potentially be valuable if the company’s stock price rises above the warrant’s exercise price.

There are two types of Share Warrants as under:

Call Warrants
  1. Call warrant gives the holder the right to purchase the issuing company’s share at the specified price on a predetermined future date
  2. The ideal time to exercise a call warrant is when the company’s share price is above the price mentioned on the instrument
  3. Loss will be incurred, if the company’s share price is below the price mentioned on the warrant, exercising it
Put Warrants
  1. Put warrant gives the holder the right to sell the issuing company’s shares at the specified price on a predetermined future date
  2. The ideal time to exercise a put warrant is when the company’s share price is below the price mentioned on the instrument
  3. Loss will be incurred if you exercise the warrant when the share price is above the price mentioned

Rationale of Issuing Share Warrants:

Companies issue Share Warrants for various reasons, wherein Companies can leverage these benefits to support growth initiatives, enhance financial flexibility and create value for shareholders and stakeholders over the long term.

Conditions to Issue Share Warrants:

Companies must follow the conditions below to issue share warrants:

  1. The shares must be fully paid up.
  2. The Articles of the company must have authorized to do so.
  3. The company must obtain the permission of the central Government.
  4. The share Warrants must be issued under the common seal of the company.
  5. Only public companies limited by shares can issue share warrants and a private limited company cannot issue share warrants.

Procedure for Issue of Share Warrants

Following are the steps to issue a Share Warrant-

  1. Written Application: Shareholders interested in obtaining a share warrant must initiate the process by submitting a written application. This application should request the issuance of a share warrant in exchange for their existing share certificate. Along with the application, they must also remit the necessary stamp duty and fees.
  2. Issuance of Lodgement Ticket: Upon receiving the application, the company secretary conducts a thorough review and issues a Lodgment Ticket. This ticket serves as an acknowledgment of the deposit of the share certificate.
  3. Board Approval: Following the scrutiny of the application and accompanying documents, the company secretary presents the request before the Board of Directors. A special Board meeting is convened for this purpose. During the meeting, a resolution is passed authorizing the issuance of the share warrant. This resolution also grants the necessary authority to sign and seal the warrant.
  4. Preparation of Share Warrant: Subsequently, the company secretary oversees the preparation of the share warrants. This involves making accurate entries and affixing the company seal on the document.
  5. Signing of the Warrant: Once prepared, the share warrant is signed by the directors of the company. Additionally, it is countersigned by the company secretary to validate the issuance.
  6. Updating Register of Members: Finally, the company updates its Register of Members by canceling the shareholder’s entry and recording the particulars of the share warrant. These particulars typically include the warrant number and date of issue.
  7. Delivery of Share Warrant: The completed and signed warrant is handed over to the shareholder. This involves notifying them of the warrant issuance. The shareholder receives the warrant as a physical document in form of an entry ticket, signifying their ownership of the specified shares.

Incidence of Taxation of Share/ Stock Warrants:

The incidence of taxation on Share Warrants can vary depending on several factors, including the jurisdiction’s tax laws, type of warrant and specific circumstances of the transaction. Here are some common incidences of taxation on Share Warrants:

Exercise of Warrants

Sale of Warrants

Sale of Shares Acquired

Conversion of Warrants into Shares

Conclusion

Companies can raise capital from their current shareholders through the use of special financial instruments called share warrants. Share warrants offer a simpler and more affordable means of obtaining capital than public offerings. Because they allow current shareholders to buy additional firm shares at competitive rates, share warrants are also advantageous to them.

In spite of the fact that numerous companies issued them some time recently the Companies Act of 2013 came into constrain, the hone has since dwindled. In any case, in the event that one is a speculator with a warrant, one has to be careful to work out them at right time. Working out a warrant when the stock cost is unfavourable to an individual can lead to a misfortune. On the other hand, in case the holder does not arrange on working out the warrant, at that point they can consider offering it on the auxiliary advertise rather than letting it pass so that they can advantage from instrument.

Disclaimer

The information provided in this article is intended for general informational purposes only and should not be construed as legal advice. The content of this article is not intended to create and receipt of it does not constitute any relationship. Readers should not act upon this information without seeking professional legal counsel.

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