ESOP and Warrants

A warrant is a financial instrument that provides the holder of the warrant the right, not the obligation, to buy a company’s stock in the future at a predetermined price.

Employee stock options and stock warrants are similar in that each gives their holder the option to buy a share of stock during a future period at a set (exercise or strike) price. Warrants and employee stock options differ from the rights issue, however, in that they may be given to investors who are not already shareholders since they are not based on the number of shares already held as rights are.

Employee stock options are often distributed to employees as a form of compensation. At the same time, warrants may be attached to debt instruments such as a bond and sold with the bond.