What Are Advisory Shares?

Advisory shares are equity compensation that companies grant to experienced external advisors in exchange for their expertise and guidance—think of it as trading stock for wisdom.

Here’s the deal: startups are usually cash-poor but equity-rich. They can’t afford to pay six figures for seasoned executives to guide them, but they can offer a slice of future success. So they bring in advisors—people who’ve already built companies, made the mistakes, and know which doors to knock on. These advisors get shares instead of cash, betting that their advice will make those shares worth something real.

This isn’t charity work. Smart advisors pick winners, and their involvement often becomes a self-fulfilling prophecy. When a respected industry veteran joins your advisory board, investors notice. When they make introductions to their network, deals happen. When they spot the strategic mistakes you’re about to make, pivots happen faster. The best part? Everyone’s incentives align. Advisors only win if the company wins, so they’re motivated to give advice that matters, not just show up for quarterly meetings.

But here’s the key difference: advisory shares typically come without voting rights. Advisors guide the ship, but they don’t steer it. They’re trusted counselors, not decision-makers. For companies, this means getting world-class expertise without giving up control. For advisors, it means staying involved in the startup game without the day-to-day grind. Understanding this balance helps companies use advisory shares strategically—attracting the right expertise at the right time without breaking the bank or diluting control.

Why companies offer advisory shares

Offering advisory shares has many benefits:

• Cost-effective way to access expert support without upfront cash payments, and with a limited budget, especially for start-ups
• Helps attract experts who can bolster their credibility and may open doors to new business partnerships
• Allows experts to offer companies strategic guidance at critical moments like launching a new product, market entry, and fundraising
• Gives companies flexibility in negotiating the terms of advisory shares to align with company objectives and long-term goals

How advisory shares work

Advisory shares are legal agreements like other types of equity, but are typically structured to appeal to those in advisory roles while aligning with the company’s needs. Here are some key facts to consider:

• The amount of equity depends on the advisor’s experience and role, and is typically a small percentage of the company’s overall equity
• Advisory shares can be structured as stock options, restricted stocks, or restricted stock units (RSUs), which are granted when certain conditions are met
• Vesting occurs over time, like other types of equity compensation, but may have a shorter vesting period with a cliff of three to six months. This means an advisor must maintain their advisory role for at least six months before receiving their shares
• Advisory shares may be subject to standard equity terms (dilution, exit clauses, buybacks, etc.)
• Tax considerations depend on how advisory shares are structured (RSUs, stock options, etc.)

Advisory shares vs. employee equity

Advisory shares and employee equity both offer ownership compensation, but they differ in a few important ways.

Employer considerations when issuing advisory shares

As companies consider issuing advisory shares in order to meet long-term goals, they must:

• Clearly define the advisor’s role and responsibility, and if there are any conflicts of interest
• Work with legal counsel to draft clear advisory agreements
• Determine the percentage or number of shares upfront and how equity dilution is acceptable
• Define vesting schedule
• Understand tax and reporting obligations, especially if advisors are global or remote

Making advisory shares work globally

Companies that want to offer advisory shares to international advisors must be aware of potential challenges and complexities:

• Tax implications. Different countries tax advisory shares differently, and advisors may incur unexpected income taxes in some locations, so it’s important to have guidance on local tax laws.
• Legal and compliance. Laws and regulations vary by country, so international advisory shares may require local legal compliance or tax disclosures.
• Currency challenges. Repatriating funds across borders to the advisor may trigger certain taxes in the advisor’s home country.

If you’re interested in offering advisory shares, consider using equity management platforms or a partner like Pebl to help manage cross-border equity compensation for international advisors.

FAQs

Do advisory shares come with voting rights?

No, advisory shares typically do not give advisors voting rights. Advisory shares are a form of equity compensation tailored to expert advisors, but don’t grant typical shareholder rights.

How are advisory shares taxed for international advisors?

Taxes on advisory shares for international advisors will depend on how the advisory shares are structured and local regulations.

Can advisory shares convert to employee equity if the advisor joins the company full-time?

Yes, advisory shares can convert to employee equity if the advisor moves into a full-time employee role. Careful planning is needed to ensure compliance and negotiate an equity package that’s fair for all parties.

What is the typical vesting schedule for advisory shares?

Advisory shares may have a shorter-than-usual vesting period with a cliff of three to six months. This means an advisor must maintain their advisory role for at least six months before receiving their shares.

Compliantly offer advisory shares to global experts

The expertise is out there, but the complexity of international equity compensation can kill the deal. Different countries have different rules about stock options, vesting schedules, and tax implications. What works in Delaware might be illegal in Germany.

Pebl knows how to structure advisory shares that work everywhere. We’ve partnered with world-class advisory firms to build global equity compensation programs that keep you compliant while attracting the advisors you need. We handle the legal complexity so you can focus on getting their expertise working for your company.

Stop letting borders limit your advisory board. Partner with Pebl to tap into global expertise without the global headaches. Because the best advisor for your company might be halfway around the world—and that shouldn’t stop you from working with them.

This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided “as is,” and no representations are made that the content is error-free.

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