Can I give shares to an advisor?

How does the company issue shares for advice?

The directors approve it by resolution. Under section 25 of the CBCA, and section 23 of Ontario’s Business Corporations Act, a share can’t be issued until it’s fully paid in money, property or past services worth at least what the company would have received in money. So shares are issued for services already given, not promised future advice. The board determines the value in good faith.

That’s why advisor equity usually vests: shares or options are earned as the advice is delivered, rather than handed over up front.

Shares or options?

	Shares	Options
What the advisor gets	Shares now, often subject to buyback if unvested	A right to buy shares later at a set price
Payment	Past services or a nominal price	Exercise price when they exercise
Tax to the advisor	Generally taxable on the value received	Depends on whether they’re an employee; get tax advice
Paperwork	Subscription, resolution, vesting terms	Grant under an adopted option plan
Voting	Votes as a shareholder	No vote until exercise

Many startups reserve part of their option pool for advisors because options keep the cap table cleaner. Advisors who aren’t employees don’t get the employee stock option rules in section 7 of the Income Tax Act, so they should get their own tax advice.

Which securities exemption applies?

Every issuance of securities needs a prospectus exemption. Two are common for advisors:

• The consultant exemption in section 2.24 of National Instrument 45-106. A “consultant” must provide services under a written contract and spend a significant amount of time and attention on the company’s business, and participation must be voluntary. A light-touch advisor may not qualify.
• The private issuer exemption, in Ontario under section 73.4 of the Securities Act. It covers close business associates of a director, officer or founder, among others, if the company’s shares are subject to transfer restrictions and beneficially owned by no more than 50 people (not counting employees and former employees). See what is the private issuer exemption?

What should the advisor agreement say?

• the services, expected time and term;
• the equity, vesting schedule and what happens if the relationship ends;
• confidentiality;
• an IP assignment for anything the advisor creates for the company;
• that the advisor isn’t an employee or director and can’t bind the company.

How much equity do advisors get?

There’s no rule. It depends on how much time they’ll spend and what they bring. Keep advisor grants modest relative to founder and employee equity, and model the dilution before you promise anything.

Our stock option plan work starts at $1,880 and includes board and shareholder approvals and a standard grant agreement. A contractor agreement for an advisor starts at $450. Fees are in Canadian dollars and exclude HST; government filing fees and other disbursements are charged at cost. See fees.

This guide is general information about Ontario and Canadian law, not legal or tax advice for your situation. To talk through advisor equity, book a free 15-minute consult.