Legal Definitions - common-stock equivalent

COMMON-STOCK EQUIVALENT

A common-stock equivalent is a type of security that can be exchanged for common stock, and is therefore considered to be the same as common stock. This includes convertible securities, stock options, and warrants.

• A convertible bond is a type of common-stock equivalent because it can be converted into common stock at a predetermined price.
• A stock option is another example of a common-stock equivalent. It gives the holder the right to buy common stock at a predetermined price.
• A warrant is a type of security that gives the holder the right to buy common stock at a specific price within a certain time frame. It is also considered a common-stock equivalent.

These examples illustrate how common-stock equivalents can be exchanged for common stock, and therefore have similar value and characteristics as common stock.