Difference Between Share Certificate and Share Warrant

Difference between share certificates and share warrants for better comprehension of securities.
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Difference Between Share Certificate and Share Warrant
OPEN ACCOUNT
3 mins read
29-October-2024

Novice investors may often get confused between terms like share certificates and share warrants. While both may seem similar at first glance, they are quite different. A share certificate is a proof of ownership issued by a company to the shareholder. It is essentially a receipt of share purchase outlining the number of shares owned by the shareholder. On the other hand, a share warrant is a document that gives the bearer the right to buy a predetermined number of shares at a fixed price on or before the stated expiration date.

In this article, we explain the difference between share certificate and share warrant in detail while elaborating on each concept to ensure a better understanding.

Comparison chart

The following comparison chart sums up the differences between share certificates and share warrants:

Parameter

Share certificate

Share warrant

Meaning

A share certificate is a legal proof of share ownership issued by the company to its shareholders.

A share warrant is a document that indicates that the bearer is entitled to purchase a certain number of shares at a preset price.

Issued by

All public and private limited companies.

Only public limited companies.

Issuing timeframe

Share certificates need to be issued within 2 months of share allotment.

Share warrants can be issued at any time.

Negotiability

Non-negotiable

Negotiable

Purpose

Establishing the legal ownership of shares.

Establishing the holder’s right to acquire shares.

Rights

Grants immediate voting rights.

Does not grant immediate voting rights to the holder.

Approval of Central Government

Share certificates do not require Central Government approvals.

Share warrants can be issued only after getting approval from the Central Government.

Provision in articles of association

No articles of association provision needed.

Articles of association must authorise the issuance of share warrants.

Expiration date

No expiration date.

Fixed expiration date before which the trade must be concluded.


While the above table clarifies the share certificate vs. share warranty debate, understanding each of these concepts in detail is essential for an investor. We have assessed each investment instrument in great detail in the following sections.

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Definition of share certificate

A share certificate is a legal document issued on behalf of a corporation, serving as proof of ownership of a certain number of shares in a company. Shareholders are issued share certificates when they purchase shares in a company. These share certificates act as receipts for the purchase and ownership of shares in the said company. Typically, share certificates include the following details:

  • Company name and registration number
  • Corporate Identification Number
  • Company’s registered address
  • Number of shares bought
  • Shareholder’s name
  • Shareholder’s folio number
  • Amount paid by the shareholder to buy the shares
  • Date of issue
  • Class of shares

According to SEBI’s mandate, all public and private limited companies have to issue share certificates within 2 months of the share allotment date. Companies can issue share certificates in physical or electronic formats. However, with the digital shift in share trading, most share certificates are issued digitally. Share certificates help companies keep track of their shareholders, which is necessary when distributing dividends or calling a board meeting.

Also read: LTP in share market

Definition of share warrant

A share warrant is a document that gives the bearer the right to buy shares at a specific price on or before a specific date. This specific price is called the ‘strike price’ and the trading date mentioned is the ‘expiration date’. Only public limited companies can issue share warrants after central government approval. Additionally, the issuance of share warrants must be authorised in the company’s articles of association. This is a crucial difference between a share certificate and share warrant.

A share warrant holder can obtain a share certificate if the individual exercises the warrant to purchase the shares outlined in the warrant. The company will then cancel the warrant and issue a share certificate to the individual as proof of ownership. Share warrants are an effective tool used by companies to raise capital without immediately liquidating their share capital. Investors can purchase shares at a predetermined price, which is usually lower than the regular stock price. Additionally, issuing share warrants is a common employee retention tool used to incentivise work.

Also read: IOC in share market

Conclusion

To conclude, both share certificates and share warrants are essential documents outlining different aspects of share ownership. While a share certificate functions as proof of current ownership, a share warrant outlines the holder’s entitlement to purchase a certain number of shares at a predetermined price in the future. Understanding the difference between share certificates and share warrants can help investors make informed investment decisions and better handle their investments.

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Standard Disclaimer

Investments in the securities market are subject to market risk, read all related documents carefully before investing.

Research Disclaimer

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Research Services are offered by Bajaj Financial Securities Limited (BFSL) as Research Analyst under SEBI Regn: INH000010043. Kindly refer to www.bajajfinservsecurities.in for detailed disclaimer and risk factors

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Frequently asked questions

What is the difference between shares and warrants?
The main difference between the two is that holding shares grants the investor partial ownership in the company, while holding a share warrant grants the individual the right to purchase shares of a company at a fixed price on or before the specified date.
What is the share certificate?
A share certificate is a legal document issued on behalf of a company to the shareholder. It outlines the number of shares owned by the shareholder and serves as a proof of ownership for the individual.
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