Advisory shares: what advisors get and what to check

Advisory shares are not a special kind of stock. "Advisory shares" is the nickname for equity a startup gives an advisor, and Carta's guide says it is typically the same common stock or stock options a company grants early employees, in practice either restricted stock or non-qualified stock options. Which of the two you are offered decides when you owe tax, whether you need cash to own anything, and whether one 30-day deadline applies to you. Find out before you sign.

This post is for the advisor receiving the grant. How big a grant to ask for is covered in startup advisor compensation. Taxes on equity depend on your situation, so have an accountant or lawyer read your actual grant before you sign it.

1. Find out which of the two things you are being offered

The offer letter may say "advisory shares", but the grant document will name one of these. Carta describes restricted stock as actual shares issued up front, and options as the right to buy shares later at a set price.

	Restricted stock award (RSA)	Non-qualified stock option (NSO)
What you get	Shares, from the grant date	The right to buy shares at a fixed strike price
Cash needed	Little or none at grant (sometimes a small purchase price)	The strike price times the shares, when you exercise
When you are taxed	As shares vest, unless you file an 83(b) election	When you exercise, on the difference between value and strike price
83(b) election possible	Yes	No
When companies use it	Very early, before funding	After the company has a valuation

Two things you will probably not be offered. Incentive stock options (ISOs) carry better tax treatment, but IRS Publication 525 says you must be an employee of the company to hold one, so advisors get NSOs instead. And Carta notes that restricted stock units (RSUs) are rare for advisors because advisors usually join early.

2. Read the vesting schedule as the price of your time

Vesting is how the company makes sure you earn the equity by staying involved. Carta says advisor grants often vest monthly over two years with no cliff, sometimes with a three-month cliff (nothing vests until month three, then the first three months vest at once). The Founder Institute's FAST template is similar: its worked example vests over two years, and the page describes a three-month cliff.

Here is a made-up example we will use for the rest of the post. Lena ran warehouse operations at a regional grocery chain for nine years and agrees to advise a seed-stage company building inventory software. The company has 8,000,000 fully diluted shares (every share that would exist if all options were exercised) and offers her 0.2%, which is 16,000 shares, vesting monthly over 24 months with a three-month cliff.

Each month, 16,000 / 24 = about 667 shares vest.
At the cliff in month three, 2,000 shares vest at once.
If the company ends the arrangement after six months, Lena keeps about 4,000 shares.

Is 0.2% normal? Carta's data for the first half of 2024 put the median advisor grant at 0.21% of fully diluted shares at pre-seed companies, 0.12% at seed and 0.05% at Series A, and only 10% of pre-seed advisors received 1% or more. So Lena's offer is generous for seed by that measure.

Ask about acceleration too. Carta says many advisors negotiate single-trigger acceleration, which vests everything at once if a set event happens, such as a sale of the company or the company ending the relationship.

3. If it is restricted stock, decide on the 83(b) election within 30 days

With restricted stock, the default rule taxes you as the shares vest. Publication 525 says that when restricted property becomes substantially vested, you include its fair market value, minus anything you paid, in your income for that year. If the company is growing, every month's shares are taxed at a higher value.

An 83(b) election flips that. You include the value at the time of the grant (minus what you paid) in income right away, and Publication 525 says later growth in value generally is not taxed as compensation when the shares vest. When you sell, your gain is measured from what you paid plus what you already reported.

Back to the made-up example. Say Lena's grant is restricted stock worth $0.05 a share on the grant date, and she pays nothing for it.

With an 83(b) election, she reports 16,000 x $0.05 = $800 of income for the year of the grant.
Without one, she reports each month's shares at their value that month. If the shares were worth $1.00 by the end, the last month's 667 shares alone would add $667 of income, close to the whole 83(b) amount.
If she pays the full $800 for the shares, the income under the election is $800 minus $800, which is zero.

The election has costs. Publication 525 says you cannot revoke it without the IRS's consent, and if you forfeit the shares later (because you stop advising before they vest), your loss is limited to what you paid minus anything you got back. So with a free grant, if Lena leaves in month two, she has paid tax on $800 of shares she never keeps.

The deadline is strict. Publication 525 and the instructions for IRS Form 15620 say the election must be filed no later than 30 days after the date the property was transferred. The form's instructions say independent contractors can file it, that it goes to the IRS by mail, and that you must give a copy to the company. You can use Form 15620 or a written statement that meets the regulation. Mark the 30th day after the shares are issued in your calendar, and ask your accountant before day 20, not day 29.

4. If it is options, know the strike price, the exercise cost and the deadline

Options cost nothing at grant. The IRS's Topic 427 says there is no taxable event when a nonstatutory option is granted, as long as it has no readily determinable market value (most don't). The tax comes when you exercise.

Carta's NSO guide explains the numbers. The strike price is set at the fair market value of the common stock on the grant date, which a private company gets from an independent 409A valuation. When you exercise, the spread (the value that day minus your strike price) is ordinary income. Carta adds a detail that matters for advisors: employees usually have tax withheld, but an independent contractor or other non-employee pays any taxes directly to the IRS.

Run the made-up example as options instead. Lena gets 16,000 options at a $0.40 strike price, and later the shares are worth $2.00.

Exercising all of them costs 16,000 x $0.40 = $6,400 in cash.
The spread is 16,000 x ($2.00 minus $0.40) = $25,600, taxed as ordinary income that year.
She owes that tax even if there is no way to sell the shares yet.

That last point is why the exercise window matters. Carta's guide to the post-termination exercise period says the vast majority of startups give departing employees 90 days to exercise vested options. That figure is about employees. Check what your own grant says happens to vested options when the advisory relationship ends, and ask for a longer window if it is short. Carta also notes NSOs usually expire a set number of years after the grant date.

5. Check these lines before you sign

Carta lists what an advisor agreement should cover, and a few more lines matter to you as the person receiving the equity:

The type of equity: restricted stock or NSOs, by name.
The number of shares and the percentage: ask for the fully diluted share count so you can check the percentage yourself.
Vesting: start date, length, cliff, and any acceleration.
For options: the strike price, the expiration date and how long you have to exercise after the relationship ends.
Board approval: Carta says the grant needs formal board approval. Ask for confirmation that it happened, because a promise in a chat message is not a grant.
Your role and time commitment: what you are expected to do each month.
Confidentiality and intellectual property terms: what you can share, and who owns what you create.

Also know that you probably cannot sell for years. Carta's FAQ says private company shares can usually be sold only during a company-approved liquidity event, such as a secondary sale, an acquisition or an IPO.

The confidentiality line cuts both ways. Advising means seeing a company's private plans, and you keep those to yourself. In the other direction, you are advising on your experience and judgment, never on your current or former employer's confidential information. The post on material nonpublic information covers where that line sits.

6. Ask for cash when the help is occasional

Equity only pays off if the company does well and you can eventually sell, which can take many years. If a company wants an hour of your time every few months, ask to be paid per conversation instead. Carta's founder guide even suggests asking advisors whether they would rather invest money instead of taking shares. See who else is listed as startup advisors or board advisors for the kind of profile companies look for.

If you want paid one-off work alongside any advisory role, claim your profile on Instant Expert to see the rate buyers start from and set your own, or browse open paid requests on the request board. You receive the full amount a buyer offers, because Instant Expert's fee is charged to the buyer on top.

Read the grant, then set a reminder

Before you sign, find the words "restricted stock" or "option" in the grant document and read the vesting section. If it is restricted stock, put the 30-day 83(b) deadline in your calendar the same day and book time with an accountant before it.