Hire Stock Options Consultants for Advisor Equity Plans

Key Takeaways

• Stock options for advisors and consultants must be carefully structured to comply with tax and securities laws.
• Companies typically offer stock options instead of actual shares to mitigate tax risks and maintain flexibility.
• Vesting schedules, equity dilution, and financing stages all impact the value and attractiveness of advisor stock options.
• Hiring stock options consultants can help navigate 409A valuations, vesting terms, IRS compliance, and cap table modeling.
• Consultants, especially international ones, may require special planning to receive options compliantly.

Advisor stock options are those stocks being offered to the advisors of your company when you issue shares. When determining how much to pay your advisor, you’ll want to think about the type of work he does for the company.

As a business owner, you should understand that stock options are usually given out during the early options of the formation stage. Therefore, it is generally done during the late stage of the financing round to better identify who has which shares, and how much leverage you will give to all executives and managers, including your advisor. But when issuing stock, you want to refrain from issuing actual shares to your advisor. While you will issue such shares to the company’s executives and managers, you should be issuing only stock options to your advisor.

Changing Valuation Will Effect Stock Options

Since the company’s valuation is always changing, it is important for business owners to identify the appropriate stock options for their advisors while taking into account the fact that the business will change in value over time. When you initially form your business, you might want to give stock to your advisor. However, if you do so, you are taking a big risk. For example, let’s assume that you form a business that is worth $50 million and you give your advisor 10% of the stock. You are essentially giving him equity of $5 million in the company. This can cause a very significant tax consequence. This is why stock isn’t usually given to a company’s advisor. Rather, options are given for such stock.

Stock Options During Financing Stages

During the development stage of financing, the following equity percentages are given:

1. Key stakeholders and C-Suite executives are given approximately 8 to 10% equity
2. The advisor might be given 0.25 to 1% equity (actual equity and not stock options)

It will be up to the CEO to determine the equity percentages throughout the financing stages. However, when the company is ready to launch, the percentage given to the key stakeholders and executives now drops to between 6 to 10%. At this point, additional managers and employees might be given equity as follows:

1. Directors and Vice Presidents of the company might be given between 2 to 6% equity
2. Employees might be given 2 to 4% equity

Thereafter, the early seed round of financing will take place. During this stage, the executives equity is now diluted to between 3 and 8%. The directors and VPs are diluted to approximately 1 to 3%. Managers are given 1 to 2%, and employees are diluted to 0.5 to 1%. At this point in the financing stage, the advisor’s stock is diluted to 0.25%.

Next is the acceleration A round, one of the last financing stages before the company offers its final shares of equity. During this round, the executives are further diluted in equity at a rate of between 2 to 6%. Directors and VPs now have 0.5 to 1% equity. Managers are down at 0.25 to 0.75% equity, and employees have 0.1 to 0.5% equity.

These percentages will continue to reduce throughout the company’s lifetime. While it might seem like 0.5% isn’t much, it might be a lot of money depending on the valuation of the business.

Vesting Considerations

Some companies offer vesting periods for advisors rather than equity or stock options. This means that the advisor will be given stock with a particular vesting or maturity date. However, the options might vest on a yearly or even a monthly basis. For example, a company might choose to give its advisor a certain amount of stock options at a specific rate that vests on a monthly basis. The percentage might be between .25 and .75%, depending on how high of a percentage the company wants to give to its advisor.

The business will need to identify whether it wants to offer a diluted stock or one that isn’t diluted but rather an outstanding share. The diluted stock will provide less benefits than an outstanding share. Regardless, if the company provides a vesting period for the advisor, it must be careful to have an appropriate vesting period and not one that is too long. Longer vesting periods might be problematic in that companies over time will rely much less on the advisor, especially after the company is fully formed and operating business as usual. This means that the company will have to terminate the advisor in order to stop the vesting period.

When to Hire Stock Options Consultants

Businesses often reach a point where managing equity grants internally becomes risky or overly complex. This is when companies typically choose to hire stock options consultants. These professionals help ensure that stock options granted to advisors and consultants comply with legal, financial, and tax regulations—especially important for startups preparing for funding rounds or scaling internationally.

Here are key situations where hiring a stock options consultant is especially beneficial:

• During or after a fundraising round to adjust equity pools and prevent cap table misalignment.
• Before issuing options to international consultants or advisors, to avoid violations of local laws or triggering unintended tax obligations.
• When preparing for a 409A valuation, which is required to determine the fair market value (FMV) of common stock for option grants.
• To design vesting schedules that align with company milestones and advisor contribution periods.
• To review or update stock option plans and ensure they are competitive, compliant, and motivating.

By hiring a consultant early, businesses can avoid costly errors and attract high-quality advisory talent with well-structured compensation plans.

Services Provided by Stock Option Consultants

Stock options consultants offer a wide range of services that go beyond paperwork. They bring strategic insight into how equity incentives align with business goals and investor expectations. Services typically include:

• Cap table modeling to project future dilution and funding impacts.
• 409A valuations and guidance on when revaluations are required.
• Designing option pools for advisors, employees, and executives.
• Drafting or revising stock option plans and advisor agreements.
• Securities law compliance, especially for issuing options to non-employees or international advisors.
• Tax optimization strategies to avoid early taxation or IRS penalties under Sections 409A and 83(b).

Companies that hire stock options consultants benefit from expert oversight, helping ensure every equity decision supports long-term growth.

Stock Options for Consultants vs. Employees

While both advisors and employees may receive stock options, the legal and tax implications differ:

Because of these differences, companies should approach advisor equity grants with additional scrutiny—and ideally, with the help of a consultant.

Frequently Asked Questions

1. Why should I hire stock options consultants?
   They provide expert guidance on compliance, tax efficiency, and cap table management—reducing legal risk when granting advisor equity.
2. Can consultants receive the same stock options as employees?
   No, consultants typically receive non-qualified stock options (NSOs), not incentive stock options (ISOs), and face different tax rules.
3. Do international advisors create complications with equity grants?
   Yes. Cross-border tax and securities laws add complexity, making it crucial to structure options properly with expert input.
4. How do consultants affect the company’s cap table?
   Advisor stock options dilute ownership. Consultants help model this dilution and align it with business and fundraising plans.
5. What should be included in an advisor stock option agreement?
   Key terms include vesting schedule, option type, exercise price, expiration, termination clauses, and compliance statements.

If you need help learning more about advisor stock options, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.