Ever heard of advisory shares and wondered what the heck they are?

You’re not alone.

A lot of founders and investors don’t really get it, and that’s a problem.

But don't worry, I’ll break it down for you.

Advisory shares are just another tool in the startup toolkit.

Think of them like a reward for giving someone access to your business for advice.

It’s like you’re getting expertise without paying in cash.

And here's the kicker:

This isn’t just for big companies. Startups love advisory shares because they let you tap into some solid experience, often without the heavy financial burden.

What are Advisory Shares?

Advisory shares are a type of equity granted to advisors of a business in exchange for their expertise and guidance.

They’re typically offered to high-value advisors, such as industry experts or seasoned entrepreneurs, who can help a company grow.

It’s like offering them a “thank you” in the form of ownership in the business.

How Do Advisory Shares Work?

1. Ownership without Cash
   You give a slice of your company to someone in exchange for their advice. No cash needed.
2. Vesting Period
   These shares don’t just drop into their lap immediately. Advisors need to stick around and help out over a certain period (usually 1-2 years).
3. No Immediate Control
   Don’t expect them to show up in board meetings every week. Advisors don’t typically get voting rights. They’re just there for their expertise.

Why Use Advisory Shares?

Let’s face it. Startups are tight on cash. Hiring someone full-time with deep industry knowledge isn’t always feasible.

Here’s where advisory shares come in.

You can tap into top-tier advice without breaking the bank.

And it doesn’t just help you.

It helps your advisor too.
They get a piece of your company’s future success, which is way more valuable than any hourly wage.

Who Gets Advisory Shares?

Advisory shares aren’t just handed out willy-nilly. You’ve gotta make sure the advisor can actually bring value to your company.

Here are the types of people who usually get them:

• Industry Experts: People with deep knowledge in your industry. They can help guide your product development or market strategies.
• Successful Entrepreneurs: Folks who’ve been through the grind and made it. They can help you avoid the rookie mistakes.
• Investors: Sometimes investors double as advisors, bringing expertise and capital to the table.

Advisory Shares vs. Stock Options: What's the Difference?

You might be thinking, “Okay, but how is this different from stock options?”

Here’s the thing:

• Advisory Shares: These are given directly to advisors for their time and expertise. They don’t have to buy in.
• Stock Options: These are usually granted to employees or executives and come with a price. They have to buy the stock at a set price later.

The Downside of Advisory Shares

Advisory shares sound pretty great, right? But there are a few things to keep in mind.

• Dilution: Giving away equity means diluting your own share. That means, if your company hits it big, you’ll own a smaller chunk.
• Expectations: Advisors may feel entitled to a lot of control. Set clear boundaries and make sure expectations are in check from the start.

Are Advisory Shares Right for Your Startup?

This depends on where you’re at and who you need.

If you need top-notch advice and can’t afford it in cash, advisory shares might be your answer.

But if you’re just looking to hire someone for a few hours of advice and then send them on their way, this isn’t the best tool.

FAQs About Advisory Shares

How many advisory shares should I give?

It varies. Typically, advisors get between 0.25% and 1% of the company, depending on how much value they’re bringing.

Do advisors get voting rights?

Nope. Advisory shares usually don’t come with voting rights. They're there for advice, not decision-making.

Can advisory shares be revoked?

Yes, if the advisor doesn’t deliver on their end of the deal or leaves early, you can revoke their shares.

What’s the difference between an advisor and an employee?

Employees work for your company in exchange for a salary and typically have stock options. Advisors, on the other hand, offer advice in exchange for equity but don't work for you full-time.

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Advisory Share Agreement Template

So, you want to create an Advisory Share Agreement.

Great move!

But where do you start?

What should you include?

What should you leave out?

An Advisory Share Agreement is key for startups and businesses looking to reward experts without paying them in cash. But the fine print matters. Get it wrong, and you might find yourself with more headaches than you signed up for.

Let’s break it down.

What’s an Advisory Share Agreement?

An Advisory Share Agreement is a contract that outlines the terms between a business and its advisor(s). It defines the equity (usually in the form of shares) the advisor gets in exchange for their time, expertise, and guidance.

In simple terms, it’s a handshake with a little more legal backing.

It’s a way to align both parties’ interests without draining your cash flow.

Now, let’s walk through what should be included in your Advisory Share Agreement Template.

Key Elements of an Advisory Share Agreement Template

Here’s what your agreement needs:

1. The Advisor’s Role

Clearly define what the advisor will be doing for your company.

Are they guiding product development? Helping you with marketing? Offering industry connections?

You need specifics.

2. Advisory Shares and Percentage

This is the part where you specify how much equity the advisor will get.

A typical range is 0.25% to 1% of the company, but that depends on their level of involvement and the stage of your business.

Make sure it’s clear, so there’s no confusion later.

3. Vesting Schedule

Advisory shares don’t just get handed out.

You don’t want someone getting equity for doing minimal work.

This is where the vesting schedule comes in.

• A 1-year vesting schedule is common.
• Typically, shares vest quarterly.

The advisor needs to stick around and provide value for a set period before they fully own those shares.

4. The Length of the Agreement

How long will the advisor be with you?

Make it clear if it’s a short-term arrangement or a longer commitment.

Usually, an advisory agreement lasts 6 months to 2 years.

5. Advisor’s Expectations and Deliverables

Set clear expectations.

What will the advisor be doing?

What does “success” look like in this relationship?

If they’re giving you advice, what should they be delivering for you to keep them around?

Include milestones and deliverables so you both know when it’s working and when it’s not.

6. Confidentiality Clause

If you’re sharing proprietary information, you need a confidentiality clause.

Make sure your advisor can’t spill the beans to your competitors.

It’s pretty standard stuff, but it’s crucial.

7. Exit Terms

What happens if the advisor stops contributing? Or if you no longer need their help?

Define the exit terms upfront.

Can you revoke shares? Can they exit the agreement early?

Be clear so there’s no ambiguity.

8. Non-Compete Clause

Do you want your advisor working with your competitors? Probably not.

Include a non-compete clause to prevent this.

Advisory Share Agreement Template: Sample

Let’s make this real. Here’s a quick example of what the core terms of your Advisory Share Agreement might look like.

Advisory Share Agreement

This Agreement is made effective as of [Date] by and between:

• Company Name: [Your Company Name]
• Advisor Name: [Advisor’s Full Name]

1. Advisor’s Role
The Advisor agrees to provide advice and guidance on [Specify Areas: Marketing, Product Development, Industry Connections, etc.].

2. Advisory Shares and Percentage
The Advisor will receive [Percentage]% of the company in the form of advisory shares, vested over a period of [Time Period].

3. Vesting Schedule
The shares will vest over [Time Period], with [Vesting Frequency].

4. Length of Agreement
The term of this Agreement is [6 Months / 1 Year / 2 Years], starting on [Start Date].

5. Deliverables
The Advisor agrees to provide the following: [List of Deliverables].

6. Confidentiality
The Advisor agrees to maintain confidentiality on all proprietary information received during the term of this Agreement.

7. Exit Terms
The Advisor may terminate this Agreement by providing [Notice Period] written notice. The Advisor’s shares will vest as of the termination date.

8. Non-Compete
For the duration of the Agreement and [X] months thereafter, the Advisor agrees not to engage with direct competitors of [Your Company Name].

Why You Need an Advisory Share Agreement

Let me tell you straight: having a clear Advisory Share Agreement is crucial.

Without one, you could run into all kinds of issues down the road. Misunderstandings. Disagreements. Even legal trouble.

This document sets expectations from the start, protecting both you and your advisor.

Here’s what can go wrong without an Advisory Share Agreement:

• Ambiguity: No clear definition of what the advisor’s role is or what’s expected.
• Dilution Problems: Giving away equity without understanding the impact on ownership.
• Legal Issues: No confidentiality clause or exit terms means risk to your intellectual property and business.

A simple, straightforward agreement can save you tons of time, stress, and cash in the long run.

FAQs About Advisory Share Agreements

How do I determine how much equity to offer?

It depends on the advisor’s value to your business. Typically, 0.25% to 1% is the range, but you might offer more if the advisor is bringing massive value.

What happens if the advisor doesn’t deliver?

You can include terms in your agreement that allow you to revoke shares or end the relationship early if they don’t hold up their end of the deal.

Are advisory shares taxable?

Yes, they are. Just like regular shares, advisory shares are subject to tax when they vest.

Can I use an advisory share agreement for a part-time advisor?

Absolutely! An advisory share agreement works whether your advisor is full-time, part-time, or just showing up for a few hours a week.

Final Thoughts

There you have it—an easy-to-understand breakdown of an Advisory Share Agreement Template.

Startups and businesses are always looking for ways to bring in top-tier advice without bleeding cash.

Advisory shares are the answer, but you need the right agreement to make sure everything runs smoothly.

Want more business tips? Stick around.

This is just the start.

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