Special purpose acquisition companies and employment related securities

The recent popularity of the special purpose acquisition company as an investment vehicle raises interesting questions about the taxation of warrants for UK sponsors.

When we talk about employment related securities, we usually think about shares being acquired by employees. Warrants are a tool that businesses can use to reward key employees or investors. They give an individual the opportunity to buy stock in a company at a preset price, for a set period of time. While stock option terms are often short, warrant contracts are often long, lasting up to 15 years.

The recent popularity of the special purpose acquisition company (SPAC) as an investment vehicle raises interesting questions about the taxation of warrants for UK sponsors. Are they employment related securities or not? Or could they be both at the same time (a Schrödinger warrant?), leading to a surprising and potentially beneficial outcome for the sponsor.