Often a young technology company will seek assistance from more experienced individuals, giving them the position of “Advisory Board Member” and giving equity to a person who agrees to serve in that capacity. This designation should not be taken lightly. There is no question that a young company can get tremendous benefit from having an Advisory Board, but it is important that the company and the Advisory Board Member have a contract setting out the rights and responsibilities of each. Matters that should be included are:
- Meeting attendance or other expectations, such as a particular number of hours of consultation per month or per quarter.
- Fees. In a start-up or other young company, this is typically equity and it should vest over the term of the agreement so that if, for some reason, the Advisory Board Member ceases to act in that capacity, he or she has not acquired 100% of the equity. Because there are tax consequences to issuing restricted stock, the Advisory Board Member often receives non-qualified stock options.
- Reimbursement of out-of-pocket expenses.
- The term of the agreement. Usually, either party can terminate the agreement with or without cause at any time.
- Ownership of any written materials, suggested product improvements or other intellectual property relating to your business.
- Confidentiality provisions, including an obligation to return all confidential material on termination of the agreement.
- Non-solicitation of employees.
- Mutual non-disparagement.
A provision clarifying that the company and the Advisory Board Member are not partners and that the Advisory Board Member is not an employee.