Bond with Warrant (BW) Investment Agreements in South Korea
Investment Agreements in South Korea
Contents
A bond with warrant is often confused with a convertible bond, but the decisive split is whether the bond disappears or remains.
A convertible bond (CB) is extinguished on conversion and becomes stock. A bond with warrant (BW), by contrast, keeps the bond in place when the warrant is exercised, and the investor additionally pays to subscribe for new shares. This difference has different effects on the company’s cash flow and cap table. This article covers the structure of a BW, the key contract terms, and founder cautions, with the 2026 revised KVCA standard form available below.
- 2026 Amendments: What Changed
- Convertible Preferred Stock (CPS) Agreements
- Redeemable CPS (RCPS) Agreements
- Common Stock Agreements
- Convertible Bond (CB) Agreement
- Bond with Warrant (BW) Agreement (this article)
- [In depth] Refixing (Conversion Price Adjustment)
1. What is a bond with warrant (BW)?
A bond with warrant (BW) is a security in which a bond issued by the company carries a right to subscribe for new shares (a warrant). Article 516-2 and following of the Korean Commercial Act are the governing provisions.
The investor receives interest as a bondholder and, as the company grows, may exercise the warrant to subscribe for new shares at a preset price. Like a convertible bond, it is a mezzanine-type investment that combines the safety of a bond with the upside of equity.
2. How does it differ from a convertible bond (CB)?
The decisive difference is whether the bond remains after the right is exercised. A convertible bond is extinguished on conversion, whereas a bond with warrant keeps the bond in place when the warrant is exercised. And the investor must pay a separate subscription amount for the new shares.
| Category | Convertible bond (CB) | Bond with warrant (BW) |
|---|---|---|
| Nature of the right | Convert the bond into stock | A right to subscribe for new shares (warrant) |
| Bond after exercise | Extinguished | Remains (non-detachable allows payment-in-kind) |
| Additional funding | None (conversion) | Yes (payment for new shares) |
| Governing provision | Commercial Act Article 513 et seq. | Commercial Act Article 516-2 et seq. |
3. What is the difference between detachable and non-detachable?
Bonds with warrants are distinguished by whether the warrant can be transferred separately from the bond.
- Detachable — the warrant can be separated from the bond and transferred or traded on its own.
- Non-detachable — the warrant is combined with the bond and cannot be transferred separately.
Because a detachable warrant can circulate on its own, its effect on the cap table and the management points differ. Confirm in the contract which type it is, and whether the warrant is exercised by paying cash or by applying the bond in lieu of payment (payment-in-kind).
4. What are the key terms of a BW investment agreement?
In a BW investment agreement, confirm the basic bond terms together with the warrant exercise terms.
| Term | Content |
|---|---|
| Maturity / coupon | The bond’s repayment maturity and interest rate |
| Warrant exercise price | The per-share price to subscribe for new shares on exercise |
| Exercise period | The period during which the warrant may be exercised |
| Detachable / payment-in-kind | Whether the warrant is separately transferable, and whether the bond may be applied in lieu of the subscription payment |
If there is an exercise price adjustment (refixing) clause, the exercise price may fall with a later round, further diluting the founder. ▶ See the methods, math, and regulation of refixing in the dedicated in-depth article.
5. What should founders watch?
Because the bond remains, a BW leaves the maturity repayment obligation in place. If the structure is one where exercising the warrant does not immediately extinguish the bond (detachable), the company can bear both a repayment burden and dilution at the same time.
In addition, the exercise price, the scope of refixing, and whether it is detachable have a large effect on the cap table, so confirm them before signing. Also check whether the interested party’s (founder’s) joint-and-several liability is combined. Atlas Legal analyzes both the bond burden and the warrant’s equity impact at the BW issuance stage and reviews each clause.
These files are the standard contract forms distributed by the Korea Venture Capital Association (KVCA), revised April 2026. The documents are in Korean. Actual transactions require review and tailoring to the specifics of each deal; these materials are provided as reference forms and do not constitute legal advice on any particular matter.
Frequently Asked Questions
Q. What is the biggest difference between a bond with warrant (BW) and a convertible bond (CB)?
A. A convertible bond is extinguished on conversion, whereas a bond with warrant keeps the bond in place when the warrant is exercised, and the investor additionally pays a subscription amount for the new shares.
Q. What is the difference between detachable and non-detachable?
A. A detachable warrant can be separated from the bond and transferred or traded on its own; a non-detachable warrant is combined with the bond and cannot be transferred separately.
Q. Which law governs BWs?
A. Article 516-2 and following of the Korean Commercial Act govern bonds with warrants. This is separate from convertible bonds (Article 513 et seq.).
Q. Does exercising the warrant bring funds into the company?
A. Yes. On exercise the investor pays for the new shares, bringing additional funds into the company. This differs where a payment-in-kind arrangement (applying the bond in lieu of payment) is agreed.
Q. What contract does a BW investment require?
A. A Bond with Warrant Investment Agreement is used. You can download the 2026 revised KVCA standard form below; review and tailoring to the deal are needed.
To consult Atlas Legal on reviewing or negotiating a bond with warrant (BW) investment contract in South Korea, please contact us at +82-32-864-8300 or info@atlaw.kr.
