A warrant allows a shareholder the option to buy a stock at a specified price for a period of time (usually 5 or more years). The price of the warrant is generally higher than the stock price at the time of issue. A shareholder exercises their warrant if the stock appreciates above the exercise price. When the warrant is exercised, the shareholder receives newly issued shares. It is important to note that warrants do not pay dividends or offer voting rights.
Warrants are generally attached to bonds or preferred stock to make it more attractive to investors. The issuing company can usually pay lower interest rates or dividends.