For private companies looking to raise capital through exemptions such as Regulation A+, Regulation CF, or Regulation D, there are many forms of securities that they may be able to issue to investors. Lately, there has been much buzz around warrants for RegA+ offerings and we are seeing them issued to investors as an equivalent to a perk. With the growing interest in this type of security, let’s explore what a warrant for RegA+ is.
When a shareholder purchases a warrant, they are entering into a contract with the issuer. They purchase securities at a set price but are given the right to buy more securities at a fixed price. For example, if an investor was to buy a security at $1 apiece, but their warrant allows the shareholder to buy securities at a future point for $2 instead. If the company was to significantly increase in value, and securities were valued at $5 instead of the initial $1 they were purchased at, the warrant could be exercised and new securities can be purchased for the price specified in the contract. Such securities are typically sought after by investors who think the company they’ve invested in will significantly increase in value, allowing them to increase their ownership in the company without having to buy securities at a new, higher price. Typically, warrants have an expiration date, but they can be exercised anytime on or before that date.
Warrants for RegA+ work no differently.
For companies offering warrants to shareholders, many will choose to enlist a warrant agent to oversee the management of warrants. Much like a transfer agent, warrant agents maintain a record of who owns warrants as well as the exercising of the warrants. When there is a significant number of warrant holders, warrant agents maintain the administrative duties of ensuring warrant holders can exercise their rights and are issued additional securities when they are looking to do so. Just as KoreConX is an SEC-registered transfer agent, KoreConX can serve as your warrant agent as well. This allows you and your shareholders to perform all transactions, from the initial purchase to the exercising of the warrant, through the RegA+ end-to-end platform. Fully compliant, KoreConX helps you to ensure that all your capital market activities meet the necessary regulatory requirements.
For warrant holders looking to exercise their warrants, they can contact the warrant agent (if they bought shares directly from the company) or their broker-dealer to inform them that they would like to purchase additional securities. At the time of the purchase, the warrant holder would pay to exchange their warrants and be issued the appropriate amount of new securities.
Warrants are also able to be traded or transferred. For example, warrant holders could transfer their securities to a child or relative if they were looking to pass them down. Alternatively, warrant holders can sell them to an interested buyer. If the company’s value has yet to exceed the warrant price, they are typically less valuable because shares may still be able to be purchased at a lower price.