Advisory Share: – It is also known as advisor share. These are the types of shares that are issued by a newly established company or a start-up company. As the name suggests “advisory shares”, it is made for the advisors of the company. It is a type of financial reward given to the company advisor. Although there are different classes of shares available, this share is specific to the advisor of the company.
Advisory Shares are Issued by whom to whom?
Advisory Shares are generally issued by newly established companies. As they are a new company they need to be advised by the experts. So, they issue an advisory share to advisers. Many companies give up to 5% of their total equity to advisers. As there are many advisers in a single company so every single advisor may get 0.25% to 1% of the company’s equity. And when time passes, and the company is being matured then their rate for advisors is being compressed.
What is the work of Advisory Shares?
Advisory shares are brought into practice to maintain the privacy of the company. As usual, advisers are always free to see all the plans of business development, product development, as well as marketing plans. So, advisory shares came into existence, in this, advisers are asked to sign an agreement. It is written that all the confidential plans of the company will be kept safe to the advisor, and they do not disclose any of the confidential things anywhere.
What are the challenges that come while issuing Advisory Shares?
- Consume more time: – To issue advisory shares requires both the parties to accept some of the primary things. They are:
- Specific role of the advisor within the company
- Advisors mustgive proper advice within the fixed time period
- Way to work together
- The equity will be offered through the advisory share agreement.
The company, as well as an advisor both, have to agree on this agreement.
- Risk for disclosure of the confidential matter: – As many advisors are working with multiple start-ups so there is a huge chance that the advisor may disclose the company’s confidential matter to another company. And, there is a chance that the advisor may give the same advice to multiple companies.
- Advisors do not give their 100%: – Generally, advisors do not get themselves stuck to a single business. Just to earn more they start offering more than one business. So, they can’t be able to give their 100% to one business.
- Use advisory shares for a shorter period of time (1-2 years)
- Before issuing these shares, you must consult a financial advisor.
While your company has just started, and you don’t have enough idea about the business then you may issue advisory shares and invite experienced advisors to your company for your help. That results in you running your business smoothly.
Always make sure that you are inviting good, experienced as well as professional advisors because if you invite a fresher or cheap advisor to your company then you may get cheap advice from them.