Advisory Shares: What Founders Need to Know

Advisory shares: A founder’s guide

Author: The Carta Team
Read time: 11 minutes
Published date: 6 November 2025

Learn how advisory shares work for early-stage companies, and how to start issuing equity to your advisors with this comprehensive guide.

Contents

What are advisory shares?

Advisory shares are a form of equity compensation given to a company's advisors in exchange for their expertise, strategic guidance, or industry connections. Granting advisory shares is a common strategy for early-stage companies to bring high-level guidance to the company without draining their bank account. If a startup doesn’t have the cash flow to pay advisor fees upfront, it can offer advisory shares in the form of stock options or restricted stock awards (RSAs), which represent a portion of the company’s equity.

It's a common misconception that advisory shares are a special class of stock. In reality, they are typically the same common stock or stock options that you might grant to early employees. The type of equity given to advisors can vary from company to company. The term simply refers to equity granted for advisory services, making it a powerful tool to compensate seasoned professionals who can help you handle the challenges of building a business.

Why grant advisory shares?

There are multiple benefits to granting advisory shares. Being able to offer non-cash compensation is useful for cash-strapped companies, and some advisors actually prefer to receive equity because of the potential upside. Company stock can increase in value as your business grows, whereas cash is typically fixed.

Determining how many shares to issue your advisors is a personal choice. Founders looking for more information or guidance should talk to their lawyers.

What types of equity can you grant advisors?

The two most common forms of advisory shares are restricted stock awards and stock options. The difference between RSAs and options is largely a legal distinction. RSAs are shares issued upfront; options are the right to buy shares in the future at a set price.

Here’s a simple breakdown of the two main types of advisory shares.

Feature Restricted stock awards (RSA) Non-qualified stock options (NSO)
What it is A grant of actual company shares The right to buy shares in the future
Ownership Advisor owns shares from the grant date Advisor owns shares only after exercising
When it’s commonly used Very early stages, pre-funding After a company has established a company valuation

Restricted stock awards (RSA)

An RSA is a grant of common stock that is subject to vesting. This is a popular approach for very early-stage companies, often before the first funding round when the fair market value (FMV) of the stock is still very low. This makes it an attractive option for both the company and the advisor.

Stock options

Stock options give an advisor the right to purchase a set number of shares at a predetermined price, known as the strike price, at some point in the future. Advisors receive non-qualified stock options (NSO), not incentive stock options (ISO), which are reserved for employees.

How to structure an advisory share grant

Issuing equity to your advisors works like any other type of equity issuance. Depending on your company, you might be able to skip some of the steps outlined below if you’ve already issued shares to employees or other service providers.

How to create an advisor agreement

A formal, written advisor agreement is essential. It protects both you and the advisor by setting clear expectations from day one. A strong startup advisor agreement should include:

How to manage advisory shares

Dilution, overcompensation, and conflicts of interest are all problems to look out for and approach thoughtfully when dealing with advisory shares and managing your company’s equity.

Aligning incentives with milestones

One way to get value from an advisory relationship is to tie an equity grant to specific, measurable outcomes, a practice known as milestone-based vesting.

Understanding tax implications

Advisory shares can carry tax consequences for both parties, depending on the type of equity. It's important to understand the tax treatment of the type of shares or stock awards you choose to grant.

Conflicts of interest

Conflicts can arise if you’re issuing equity to advisors who are involved with competing companies. Establish clear guidelines and transparency about the advisor's role and expectations to mitigate these risks.

Frequently asked questions about advisory shares

What is the difference between advisory shares and a stake in the company?

An advisory share grant gives an advisor an ownership stake in the company. However, this stake represents a much smaller percentage of ownership than that of a founder's initial allocation of founder shares or a major investor.

When should I offer advisory shares?

Offer advisory shares after you and the advisor clearly define their role, expected contributions, and time commitment, and once the value of their ongoing involvement is evident. Only formalize equity grants when your company is properly incorporated and has the legal structure to issue equity, using a written advisory agreement to set terms and protect your interests.