Both advisory shares and equity represent ownership in a company, but they serve different purposes and come with different terms.
Why It MattersUnderstanding the distinction helps companies design fair and effective compensation plans. For advisors, advisory shares offer a way to participate in a company’s upside without a cash salary. For founders and investors, regular equity represents a direct financial and governance stake in the company’s future.
How do advisory shares work?
Advisory shares are typically granted to advisors, mentors, or board members who help a startup grow. They usually vest over time and may be structured as stock options or restricted stock units (RSUs).
How are advisory shares different from regular equity?
Unlike common or preferred equity, advisory shares: -Are granted in smaller amounts (usually 0.1%–1% of the company). -Typically do not include voting rights. -Are subject to vesting schedules based on continued advisory contributions.
Can advisory shares be sold or transferred?
Most advisory shares have restrictions on transferability, meaning they cannot be sold or transferred until a liquidity event (e.g., acquisition or IPO).
Do advisors get paid in cash or only in shares?
Startups often compensate advisors with equity instead of cash to conserve funds while still incentivizing advisors with long-term upside.
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