ContractsCounsel Logo

Advisory Shares Explained

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 7,608 reviews
Home Blog Advisory Shares Explained

Jump to Section

Need help with an Advisor Agreement?

Post Project Now

Post Your Project (It's Free)

Get Bids to Compare

 Hire Your Lawyer

Advisory shares are an advantageous equity arrangement between start-ups and business experts. Rather than give up capital, new companies entice advisors to offer guidance while incentivizing them to help it grow over time per a pre-determined vesting schedule.

In this article , we help start-ups and advisors understand the basics of advisory shares, issuance, and vesting schedules. We also share a few example scenarios to show you how they work in practice.

What are Advisory Shares?

Advisory shares are stock options that start-ups give to company advisors instead of cash compensation. They are different from full-time employee stock options and common stock from a vesting and taxation standpoint. Advisory shares offer advisors a non-cash stock option for their expertise without requiring the start-up to give up capital.

Who Gets Advisory Shares?

Advisors receive advisory shares from start-up companies .

The amount of equity will vary according to the situation considerably. In general, the advisory board receives around five (5) percent of a company’s total equity while individual advisors receive between 0.25 and one (1) percent . The advisor’s background and level of participation will also determine if the individual gets shares.

However, the total amount that an advisor receives depends upon how much they are expected to contribute. More mature start-ups can command lower percentages, whereas younger, riskier companies may need to increase.

Here is an article that defines advisor.

Who Issues Advisory Shares?

Start-up companies issue advisory shares to advisors .

They offer advisory shares to start-ups when they need specific business or subject-matter expertise. However, a start-up may still be in the pre-launch phase, making it challenging for ideal investors to provide capital funding. The advisory shares option can take a company from concept to launch more efficiently and effectively under an expert’s watchful and equity compensated eye.

Equity given to advisors can vary considerably. An advisor’s expertise and role can determine if they receive advisory shares. It could also depend on how long the advisor and company expect to work together.

Here is a web page that defines start-up companies.

Common Advisory Shares Vesting Schedule

Common advisory shares vesting schedules are typically two (2) years with no cliff . As such, an advisor’s advisory shares vest, or become earned, in monthly increments over 24 months. However, the start-up does not owe an advisor the entire vesting schedule if they stop providing advisory services as described in the advisory agreement .

What Are Cliffs in Vesting Schedules?

Cliffs are periods without stock vestments, typically occurring in one (1) year. This vesting schedule is usually a condition of employee stock options and not part of the advisory shares vesting schedule .

Meet some lawyers on our platform

Daehoon P.

159 projects on CC
View Profile

Melissa L.

4 projects on CC
View Profile

Janice K.

1 project on CC
View Profile

Zachary J.

191 projects on CC
View Profile

Difference Between Regular Shares and Advisory Shares

The primary difference between regular shares and advisory shares is that regular shares are common stock units available for purchase on the public market. In contrast, advisory shares are stock options given to experts in exchange for their strategic business insights.

The latter fall under non-qualified stock options , or NSOs, which differ from employee incentive stock options , or ISOs.

ISOs vs. NSOs

ISOs are stock options for employees, while NSOs incentivize consultants, partners, advisors, directors, and others. The Internal Revenue Service (IRS) taxes NSOs as regular income when shareholders want to exercise the stock option. ISOs do not incur tax liability at the time of exercise.

Examples of Advisory Shares

No two start-ups and advisory share deals are alike. The situations that you face as an advisor or start-up will always bring about unanticipated events. However, a solid advisor agreement can help you mitigate challenges.

Below, we’ve outlined two common examples of advisory shares to help better illustrate how they work regardless of which role you play:

Example 1. Great Idea But Not Enough Capital

This example demonstrates the power of start-up advisory shares when paired with a strategic business expert. Let’s take a look:

  • PKW, Inc. is a start-up that sells Bluetooth tags that integrate with smartwatches, phones, and other devices that helps forgetful people remember their phone, wallet, keys, briefcase, or any other items they tend to forget
  • They offer a location-based tracking tag that sends an alert as soon as you hit your front door and can produce these tags in-house with raw materials coming from international suppliers at a great price
  • The application interface is easy to use and optimized for accessibility, making it ideal for students, older adults, and those with memory impairments
  • Sales have been below projections, and PKW has been receiving complaints that the front door function does not work intermittently, competitive advantage is waning, and a host of other issues
  • PKW convinces Premiere Group, a technology marketing advisory group, to help them turn things around in exchange for 10% of the equity in advisory shares, with vesting occurring over three years
  • Premiere quickly determines that PKW left several opportunities on the table by limiting their product to “commonly forgotten items” while falling short on the development of their location-based Bluetooth technology
  • The advisor group guides them through the necessary changes, including rebranding, research and development, strategic marketing management, and more
  • After three years, PKW has a successful company with an interesting origin story and fully vests the advisory group’s shares

This example highlights a great use of how advisory shares work and the exchange of value that can occur, even between seemingly risky investment opportunities. However, the success of a deal ultimately depends upon the product or services offered and the type of advisors that join the project.

Example 2. Advisor Departs Early

This example features a smart vehicle manufacturer and a solo advisor named Howard Dewey:

  • Orion is a smart vehicle manufacturer headquartered in Coralville, Iowa
  • Howard Dewey promotes himself as a savvy investor and knowledge incubator in the smart technology space with 30 years of executive automotive industry experience
  • Orion and Mr. Dewey believe they can create value with his knowledge but agree the company does not have enough equity for traditional investment instruments
  • They also agree to Mr. Dewey taking a 1% advisory rate with full vesting occurring at two years
  • Seven months into the agreement, Mr. Dewey becomes ill and can no longer offer advisory services, for which he provides 30 days’ notice per the advisor agreement
  • Orion agrees to release him from the agreement and waives the 30-day notification requirement based on Mr. Dewey’s exceptional performance and unanticipated situation
  • They pay him the equivalent of 7 month’s advisory services or 7/24ths of the total amount
  • Both parties walk away from the agreement amicably having met all contractual obligations and exchange “thank you” letters as a matter of formality

As you can see, advisory situations can lead to unique but unanticipated problems. The example above illustrates how health complications can cause significant disruptions. However, Orion and Dewey had an agreement to govern the situation.

They followed through on the terms and conditions , which is all that anyone can legally ask of a contractually-obligated party.

Get Legal Help with Advisory Shares

Advisory shares can entice business- or subject-matter-savvy experts to assist start-ups in their growth efforts. However, suitable advisors will anticipate a deal to include the formal agreements, including advisory agreements and advisory board agreements if they serve on the board of directors. Start receiving proposals from start-up lawyers near you today.

Post a project in ContractsCounsel’s marketplace to get flat fee bids from lawyers to review. All lawyers are vetted by our team and peer-reviewed by our customers for you to explore before hiring.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

Zachary J. on ContractsCounsel
View Zachary
5.0 (127)
Member Since:
May 27, 2022

Zachary J.

Free Consultation
Crown Point, IN
4 Yrs Experience
Licensed in IL
The University of Michigan Law School

I am a solo-practitioner with a practice mostly consisting of serving as a fractional general counsel to growth stage companies. With a practical business background, I aim to bring real-world, economically driven solutions to my client's legal problems and pride myself on efficient yet effective work.

Angela Y. on ContractsCounsel
View Angela
5.0 (8)
Member Since:
June 16, 2022

Angela Y.

Founder and Managing Partner
Free Consultation
New Jersey
8 Yrs Experience
Licensed in NJ, NY
Rutgers University School of Law

NJ and NY corporate contract lawyer and founder of a firm specializing in helping entrepreneurs. With a background in law firms, technology, and world class corporate departments, I've handled contracts and negotiations for everything from commercial leases and one-off sales agreements, to multi-million dollar asset sales. I love taking a customer-focused and business-minded approach to helping my clients achieve their goals. Other information: learning to surf, lover of travel, and one-time marathoner (NYC 2018)

Angelica M. on ContractsCounsel
View Angelica
5.0 (3)
Member Since:
June 13, 2022

Angelica M.

Managing Attorney
Free Consultation
North Carolina
8 Yrs Experience
Licensed in NC
North Carolina Central University School of Law

Angelica McDonald, Esq. has singlehandedly established an in-demand law firm, won several accolades for her incredible work in her community and has her sights set on building a bi-coastal law practice that serves clients from her hometown to Hollywood. She is putting her city of Raeford, North Carolina on the map as the birthplace of the next legal superstar. And she is just at the onset of her career. An astute attorney, Angelica is sought after for her razor-sharp business acumen and her relentless litigation style. With a diverse background in entertainment, media and sports law, as well as business, she represents entrepreneurs and athletes on everything from complex contract negotiation to intellectual property matters, ensuring anything they’ve built is protected.

Michael T. on ContractsCounsel
View Michael
5.0 (1)
Member Since:
June 13, 2022

Michael T.

Free Consultation
Fairfax, Virginia
33 Yrs Experience
Licensed in DC, MD, VA
College of William and Mary

I have been in practice since 1990 and practice in D.C., Maryland, and Virginia. I am an experienced litigator and look forward to resolving your legal questions as efficiently as possible.

Josh L. on ContractsCounsel
View Josh
Member Since:
May 24, 2022

Josh L.

Director of Art and Business Law
Free Consultation
Fort Lauderdale, Florida
8 Yrs Experience
Licensed in FL
Nova Southeastern University Shepard Broad College of Law

Josh is a founding partner and the director of Art and Business Law for Twig, Trade, & Tribunal PLLC a local Fort Lauderdale law firm. His practice focuses on Art and Business law including art transactions, legal strategy, art leasing, due diligence, contract drafting, contract negotiations as well as other facets of Art Law including consulting for all market participants. He also advises clients regarding issues for Non-Fungible Tokens (NFTs) again focusing on contract drafting, strategic guidance, and other factors as it relates to art produced as NFTs having given numerous presentations on the subject.

Michael R. on ContractsCounsel
View Michael
Member Since:
May 30, 2022

Michael R.

Free Consultation
11 Yrs Experience
Licensed in CA
Whittier Law School (Top 5%)

If you're looking for an attorney who can help your business succeed, look no further! With my experience in the legal field, I can provide you with the legal advice you need with entity formation, contract drafting, business operations, and more, And because I'm committed to providing high quality service, you can be sure that your needs will always be met. Contact me today to learn more about how I can help your business thrive!

Jason Q. on ContractsCounsel
View Jason
Member Since:
June 13, 2022

Jason Q.

Attorney / Owner
Free Consultation
Sarasota, Florida
15 Yrs Experience
Licensed in FL
Wake Forest University School of Law

I am a Florida estate planning and probate attorney helping clients achieve their goals through personalized legal strategies. Excellent communication, thorough preparation, and accurate execution are the keys to success.

Find the best lawyer for your project

Browse Lawyers Now
Learn About Contracts
See More Contracts
other helpful articles

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer


Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city