Resolved: Difference between Rights issue shares and Warrants
hey Ivan,
can you tell the difference between these two terms, as in India we learn accounting of rights issue majorly, (warrants are mostly unheard of) while we learn accounting of rights issue its lifespan spreads 3 years.
But on internet search i have found that right issue shares have shorter lifespan of say 3 to 6 weeks. and warrants can range from 1 to three years (also in course you said it can range upto 15 years)
can warrants be issued to company outsiders? or just employees, existing shareholders, stakeholders, etc.?
thank u
Hello Dhiraj!
Thanks for reaching out!
Certainly, let's clarify the difference between rights issues and warrants, particularly focusing on their lifespan and who they can be issued to.
Rights Issue: A rights issue is a way for companies to raise capital by offering existing shareholders the right to purchase additional shares at a discounted price, usually for a short period of time (3 to 6 weeks). This short timeframe refers to the period during which the rights can be exercised by the shareholders. If shareholders do not exercise their rights within this period, the rights expire. The accounting treatment of rights issues, which you mentioned spreads over three years, likely refers to the subsequent accounting and financial reporting of the funds raised and their utilization over time, rather than the lifespan of the rights issue itself.
Warrants: Warrants are financial instruments that give the holder the right, but not the obligation, to buy the underlying company's stock at a specified price before the expiry date. Warrants can indeed have a wide range of lifespans, from 1 to 15 years, making them longer-term instruments compared to rights issues. This longer duration provides the holder with the potential for capital appreciation.
Regarding who they can be issued to:
Rights issues are specifically targeted at existing shareholders. The purpose is to give current shareholders a chance to maintain their ownership percentage in the company without being diluted by the issuance of additional shares.
Warrants can be issued to a broader group of people, including company outsiders, such as investors, potential investors, partners, and even employees as part of compensation packages. Warrants are often used as an incentive or a financing tool and can be attached to bonds or preferred stock to make these securities more attractive to potential buyers.
I hope this clears up the differences and specific characteristics of rights issues and warrants for you!
Best,
The 365 Team
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