Great question! Warrants would fit best in the ‘right to maintain proportionate ownership’ category, but we need to go over the details. Try to disregard the exact title of the right for this question; in a perfect world, it would be titled “Right to approve or disapprove dilutive actions, or to maintain proportionate ownership during a dilutive action.” Obviously we keep titles short for aesthetic purposes, but it can sometimes lead to questions like yours.
The issuance of warrants is a dilutive action. Plain and simple, if a small group of investors obtains newly issued shares, and those shares are not available to all current stockholders, it’s a dilutive action. We see this most often with issuance of convertible securities, but it also occurs with warrants. Before issuing new shares (or the right to buy new shares, like a warrant) to the public, the issuer must do one of two things:
- Offer first rights to those new shares to all current stockholders (rights offering)
- Gain approval from current stockholders to do the dilutive action
Warrants fall into the second bullet point above, similar to issuance of convertible securities. Warrants will be issued to a new set of investors and are not offered to all current stockholders first. As you probably read in the material, warrants are typically issued as sweeteners with another security, like a bond. Issuing warrants helps the issuer make the bond (or whatever security they’re attaching the warrants to) more marketable, potentially allowing the bond to have a lower interest rate, therefore saving the issuer money. The more money the issuer saves, the more profitable it is, and the better off its investors are.
In the end, current stockholders may not be given warrants when they’re issued, but their issuance could make the company they’re invested in more profitable, leading to higher stock prices. For this reason, stockholders commonly approve warrants to be issued.
I hope this helps! Please respond if you have any questions.