🧠 What Are Advisory Shares? A Practical Guide for Startups

Anne Veerpalu
Aug 5
2 min read

Advisory shares are a way for startups to reward individuals who offer strategic guidance but aren’t on the payroll. Instead of paying in cash, startups provide a small equity stake to advisors whose input can move the business forward. It’s a smart alternative for early-stage companies that want to save cash and still attract high-level expertise.

✅ How Advisory Shares Work

Imagine you’re launching a startup. You meet someone with deep industry knowledge who’s willing to help with introductions, growth strategy, or product feedback. Rather than paying them a fee, you offer a portion of company equity. These advisory shares act as a token of appreciation and a way to align incentives between the company and the advisor.

Advisory shares can come in the form of:

Common shares
Share options (with vesting)
Convertible instruments (in some cases)

They typically vest over time, just like employee stock options, and often come with a 12–24 month advisory agreement.

💡 Real-Life Scenarios

Tech advisor helps shape product roadmap → gets 0.25% equity
Marketing expert supports go-to-market launch → 0.1–0.2% equity with 12-month vesting
Board-level strategic advisor → may receive 0.5–1.0%, depending on contribution

The key is to match equity grants with the advisor’s expected impact.

💸 Tax Considerations

The tax treatment of advisory shares depends on:

The advisor’s country of tax residence
Whether they’re receiving actual shares, options, or convertible rights
The legal status of the advisor (individual, consultant, company)

Common tax types involved:

Income Tax: If shares are seen as payment for services
Capital Gains Tax: When shares are sold at a profit
VAT (Value-Added Tax): In some jurisdictions, equity-based payment might trigger VAT on the service
Other local taxes: e.g., wealth tax, securities transfer taxes

📌 In some countries (like Estonia), non-employees may still benefit from favorable tax treatment if structured properly. Always consult a tax advisor.

📈 Pros and Cons of Advisory Shares

✅ Benefits

Cost-effective way to bring top talent on board
Aligns long-term goals between startup and advisor
Helps build a strong network early

⚠️ Risks

Giving away too much equity too early
Advisors who don’t deliver after equity is granted
Legal complications if terms are vague or undocumented

To avoid problems:

Use clear advisory agreements
Add vesting schedules
Document expectations and contributions

📊 Should You Use Advisory Shares?

Advisory shares can be an excellent strategic tool—especially when used thoughtfully. They are best suited for early-stage startups that need guidance but can’t afford senior-level retainers. Just make sure you: