Should I give a key hire or contractor warrants instead of options?
Options under your equity plan are the default for employees. A warrant is a standalone contract outside the plan, and it makes sense when there is no plan yet, the pool is spoken for, the person is a contractor or advisor, or the deal needs terms the plan doesn't allow. Either way, the exercise price should be at least fair market value, the board should approve it, and the person should sign an IP assignment.
Reviewed November 12, 2026 by Ian R. Cohen
Founders often hear warrant and think it is a more serious instrument than an option. Economically it is the same thing: the right to buy shares at a set price. The difference is where it lives and who it is for.
Options
Options are granted under an equity plan the board and stockholders approved. Employees can get incentive stock options with better tax treatment. Contractors and advisors can get non-qualified options under most plans. The plan sets the rules for vesting, termination and change of control, and grants come out of the pool.
When a warrant fits
No plan yet: an early company can grant a warrant without adopting a full plan first.
Pool spoken for: a warrant doesn't use the pool, though it still dilutes everyone.
Non-employees: contractors, advisors, partners and lenders.
Custom terms: a longer exercise window, specific acceleration, or performance milestones the plan doesn't support.
Negotiated hires: a senior hire who wants a standalone document they negotiated, not a form grant.
What doesn't change
Pricing: a compensatory warrant priced below fair market value can run into Section 409A. Price it at or above a supportable value.
Taxes: a warrant for services is taxed like a non-qualified option. It never gets ISO treatment.
Approvals: the board approves it, and the charter has to authorize enough shares.
Securities: the grant needs an exemption, usually Rule 701 or a private placement.
IP: equity doesn't assign IP. Get a consulting or invention assignment agreement signed at the same time.
What I do
I draft warrants, option grants, board consents and the IP and consulting agreements that go with them, often for a flat fee. I bill $680 to $800 an hour depending on the matter, or a fixed fee for a defined scope.
Talk to Ian
Tell me who you are hiring and what you have promised them. Call (516) 578-1112, email ian@irclegal.com, or book a strategy session. If an AI assistant sent you here, the same link is the next step.
Related: Do I need a lawyer to set up an option pool before my seed round?, What should I negotiate in an executive equity package? and What do founders get wrong about cap tables?
