As a business owner, you may choose to appoint an advisor rather than a director on a formal board. This may be beneficial as an advisory board director can add value without undertaking a formal director’s legal responsibilities and duties under the companies law.
Importantly, when you appoint an advisor, you’ll need to document it properly. This is much like hiring an employee. The contract will lay out the role, legal relationship, and any compensation for the advisor. It should also include board procedure and company structure.
A well-drafted advisor appointment letter will help avoid any confusion and ensure everyone is on the same page going forward in your business.
There are two options depending on whether you are a startup or a small business:
If you are a startup, you’ll want to use a FAST agreement. Typically, under a FAST Agreement, the advisor does not receive any cash compensation. Rather, the advisor may have the right to receive shares in the future. In essence, the shares may be vested to the advisors on various stages of growth of the company or a fixed vesting schedule. Importantly, by using a FAST Agreement, the advisor serves as an independent consultant, not as an employee.
If you are a small business, instead you’ll use a consulting agreement. The contract makes certain that both parties are clear on all details concerning the arrangement, exact nature of the service, and the objectives of the appointment. Most importantly, this includes the payment requirements. Similar to above, a consultant is not an employee and does not enjoy statutory rights as an employee.
If you are freelancing as an advisor, you should ensure you have either a FAST or consulting agreement in place from the get-go.