An advisor agreement is an agreement entered into with a person who provided advisory services to a corporation as an independent contractor. An “advisor” is not a professional advisor, but generally a person with expertise or contacts in certain areas, such as fundraising, technology or recruiting.
The agreement is unique in that the Advisor’s contribution is limited - they often work only few hours a week or even a month. Advisors are often compensated through stock options, in many cases, this is the only form of compensation. However, especially for more mature startups, an advisor can also be paid a fee for their services.
The following are some of the main provisions when drafting an Advisor Agreement:
- services and level of commitment - describe the nature of the services to be provided. It is also helpful to set out a base level of expectations so that everyone is on the same page, for example, the expectation may be that the advisor work approximately 4 hours per month nd be available for a monthly meeting.
- compensation - Advisors are often compensated through stock options. The main details would be set out in the Advisor Agreement with additional information set out in a separate option agreement.
- nature of the relationship - confirm that the Advisor is providing services as an independent contractor
- conflict of interest - generally, a non-compete is not appropriate for an Advisor. However, depending on the circumstances, you may wish to include a provision confirming the Advisor does not provide services to a competitive business while they are providing their services to you.
- confidentiality - a confidentiality provision should always be included in the Agreement.
- termination - the agreement should specify under what circumstances the agreement will terminate and what, if any, are the parties’ obligations on termination. For example, the agreement could automatically terminate after 3 years, but could also be terminated sooner on 30 days notice or if certain events occur, such as bankruptcy.