Share warrants are increasingly used by UK companies—particularly growth-stage businesses and investment vehicles—to incentivise investors, advisers and key employees. Yet despite their apparent simplicity, warrants regularly give rise to disputes that become expensive to resolve and disruptive to the underlying business.

Common Pitfalls in UK Share Warrants – And How to Avoid Costly Disputes

Callum Ritchie January 5, 2026

Share warrants are increasingly used by UK companies, particularly growth-stage businesses and investment vehicles, to incentivise investors, advisers and key employees. Yet despite their apparent simplicity, warrants regularly give rise to disputes that become expensive to resolve and disruptive to the underlying business.

In practice, many of these disputes stem from avoidable drafting issues, unclear commercial terms or a failure to think ahead about how the warrant will operate throughout the lifecycle of the company. This article highlights the pitfalls we see most frequently at The Jonathan Lea Network and explains how to mitigate them through careful structuring and well-considered documentation.

1. Ambiguous or Incomplete Exercise Provisions

One of the most common causes of disagreement is uncertainty around how and when a warrant can be exercised. If the mechanics are not tightly drafted—particularly around notice requirements, time limits, payment terms and share issuance formalities, parties may later dispute whether the warrant holder validly exercised their rights. Warrants should always specify the exact steps required for exercise, including form of notice, method of payment, deadlines and the company’s obligations once exercise occurs.

2. Failure to Define the Nature of the Shares Being Acquired

Another widespread issue is the absence of a clear definition of the share class, rights and restrictions attaching to the shares to be issued on exercise. If the company undertakes an internal reorganisation, creates new share classes or amends its Articles, any ambiguity can result in conflict about what the warrant holder is entitled to receive. To avoid this, the warrant instrument should define the share class precisely and include provisions ensuring that the warrant holder’s rights are preserved or fairly adjusted in the event of changes to the company’s capital structure.

3. No Clear Treatment on Exit, Dilution or Corporate Events

Warrants often fall apart when a company undergoes a sale, investment round, restructuring or other milestone event. Without explicit provisions dealing with acceleration, early exercise, dilution, drag-along participation and the impact of new share issues, warrant holders may find themselves disadvantaged, or companies may discover that an old warrant unexpectedly complicates the deal process. A well-drafted warrant instrument must anticipate exit scenarios and contain mechanisms that operate fairly under different transaction structures.

4. Misunderstanding Tax Implications

The UK tax treatment of warrants can vary significantly depending on the circumstances, the type of consideration paid and whether the recipient is an employee or third-party investor. Problems frequently arise where companies assume warrants are entirely outside employment-related securities rules or that no tax will arise on exercise. In practice, HMRC may expect PAYE withholding, income tax charges or employer NICs if the warrant is granted by reason of employment. Ensuring an early tax review and, where appropriate, obtaining valuations or advance assurance can prevent unwelcome liabilities arising later.

5. Failing to Align Warrants With the Company’s Articles and Shareholders’ Agreement

A warrant instrument operates alongside the company’s constitutional documents. If the warrant contradicts the shareholders’ agreement or the Articles, particularly around voting rights, pre-emption rights or restrictions on share transfers, this can create enforceability issues and shareholder disputes. The wider corporate drafting should be cross-checked to ensure consistency, and companies should consider whether warrant-related shares automatically fall within existing shareholder agreements or require the holder to enter into a deed of adherence.

6. Overlooking Long-Stop Dates or Allowing Warrants to Lapse Unintentionally

Many disputes arise simply because the parties fail to monitor expiry dates. A warrant that unintentionally lapses may give rise to claims of negligence, breach of contract or detrimental reliance, especially where the holder has provided services or investment in expectation of future equity. Companies should include realistic exercise windows, clear provisions on expiry notification, and internal systems to track warrant timelines carefully.

7. Inadequate Consideration of Regulatory and Filings Requirements

Issuing warrants may trigger Companies House filings, shareholder approvals or accounting considerations. Problems occur where a company issues warrants informally without the appropriate board minutes, authorising resolutions or filings under the Companies Act 2006. This can later undermine the validity of the warrant or complicate due diligence during investment or sale processes. Ensuring that grant and exercise are fully recorded in statutory books and supported by appropriate resolutions is essential.

8. Poor Record-Keeping and Lost Documentation

It is surprising how often disputes arise simply because no complete copy of the warrant instrument exists, or because parties disagree on its terms years after issue. A single missing schedule, signature page or cap table entry can significantly weaken a company’s position. Companies should always maintain full copies of warrant instruments, exercise notices, valuation reports and board minutes, ideally backed up in a secure digital document management system.

How to Avoid Warrant Disputes – Practical Guidance

While the specific risks will depend on the structure of each transaction, the following principles significantly reduce the likelihood of disputes:

Use precise and comprehensive drafting
Warrants must be more than a short commercial summary. They should anticipate future events, define rights clearly, and remove any ambiguity around pricing, timing, notice requirements, exercise mechanics and share rights.
Integrate the warrant into the wider corporate framework
Warrants should not exist in isolation. Ensuring alignment with Articles, shareholder agreements, investment documentation and cap table management systems helps preserve consistency and enforceability over the long term.
Seek early tax and legal advice
Many risks, especially tax exposure, employment-related securities issues and capital structure complications—only become apparent with specialist review. Companies and recipients benefit greatly from early advice before terms are finalised.

Conclusion

Share warrants can be powerful commercial tools, but only when carefully drafted and properly integrated into the company’s governance framework. Most disputes we encounter arise not from complex legal points, but from ambiguous documentation, poor planning or administrative oversights. By addressing the common pitfalls set out above, companies can protect themselves from costly conflict and ensure that their warrants operate as intended.

If you require assistance drafting, reviewing or negotiating UK share warrants, or resolving a dispute concerning an existing instrument, The Jonathan Lea Network would be pleased to help.

We usually offer a no-cost, no-obligation 20-minute introductory call as a starting point or, in some cases, if you would just like some initial advice and guidance, we will instead offer a one-hour fixed fee appointment (charged from £250 plus VAT depending on the complexity of the issues and seniority of the fee earner).

Please email wewillhelp@jonathanlea.net providing us with any relevant information or call us on 01444 708640. After this call, we can then email you a scope of work, fee estimate (or fixed fee quote if possible), and confirmation of any other points or information mentioned on the call.

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This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.