Many businesses can benefit from the input of skilled advisors, but the advisors' role has to be clearly defined on day one.

A company that wants to embark on a new strategic project and access new markets will often seek the input of an external advisor. This is someone from outside the company who has firsthand experience of an area where there is an in-house gap in skills.

Making sure that you formalise such a relationship protects you and your business by setting clear boundaries and responsibilities.

What is an Advisor Agreement?

An advisor agreement, also known as an advisor equity agreement, is a legally binding contract between an individual advisor and a company.

Usually, the company will hire the advisor based on their skills and expertise, with the terms to be agreed between the two before work begins.

For the purposes of this guide, you can think of an advisor agreement as similar to a contract of employment. While an advisor may not be entitled to full-time benefits, such as sick pay, they will have a contract in place that details what they are to be paid or reimbursed for their services.

The next step is to look at when an advisor agreement is needed.

When is an Advisor Agreement Needed?

We strongly recommend that an advisor agreement is in place any time a company seeks the advice and input of a third party. Having an agreement in place is always good practice and is especially common when:

• The advisor has a leadership or decision-making position within the wider company framework 
• The company is a startup business that pays the advisor in equity so that they become a shareholder
• The nature of the business and the background of the advisor means that future conflicts of interest may occur

If in doubt, putting an agreement in place is the smart approach. We are now ready to take a closer look at the precise structure and nature of an advisor agreement.

An Advisor Agreement: Terms to Include

You can split the agreement into two main parts: services delivered by the advisor and compensation paid by the company to the advisor.

In terms of services delivered, you would expect to see all of the following covered:

• The name of the advisor and the company 
• The nature of the services to be delivered 
• Any performance indicators or targets 
• Key deliverables and timelines 
• Whether or not an NDA should be signed

In terms of the compensation paid to the advisor, you would expect to see:

• The nature of the compensation, whether salary or equity 
• The size of the compensation and date it will be awarded 
• The length of the agreement and any fees due during its lifetime 
• A clear statement of the terms of termination, including who retains the IP

Read more about Employment Contracts.

Advisor agreements are designed to protect both the advisor and the company and are built on a sound legal footing.

Legal Basis of an Advisor Agreement

Advisor agreements are based on UK employment contract law and cover the responsibilities and compensation of both the advisor and the company.

For the purposes of writing this guide in plain English, you can think of the advisory agreement as similar to any other employment contract.

The key difference between advisor agreement and employment contract is that the advisor will be performing higher level strategic tasks on an as-needed basis and they will therefore command a bespoke compensation package. Such a package would typically lie outside of the stand pay structure of the rest of the business.

Benefits of having an Advisor Agreement

Companies that hire advisors need to be aware of highly complex legal issues that can occur months, even years, after the initial employment.

There are well-documented cases where advisors have contested the ownership of IP and the size of shareholdings.

Having an advisor agreement in place ensures that your business:

• Sets clear boundaries between what the advisor delivers and what the business owns 
• Enjoys the protection of full confidentiality when it comes to commercially sensitive information
• Benefits from non-compete clauses that prevent an advisor working for a competitor immediately after their contract has finished

The more explicitly the relationship is defined, the more protection the business has. Careful wording during the drafting process is therefore of paramount importance.

Drafting an Advisor Agreement

Many businesses start the drafting process by referencing the job description for the advisory position. Careful review is then needed to turn company expectations into a clear set of targets, deliverables, and legal boundaries.

Every agreement should be written specifically for the new relationship — a generic template will only cause issues and leave the business exposed. Having a legal professional thoroughly check the precise wording will ensure the business is protected.

Advisor Agreement Protects Your Business

Financial advisor agreements are more than just standard practice — they are a pragmatic way to build relationships with skilled third parties. You can think of them as legally binding employment contracts between companies and part-time advisors who operate outside the normal pay structure.

Having an agreement in place protects the business against claims for compensation, different equity stakes, and IP disputes.

If you would like to learn more about the topic covered in this guide, connecting with a legal professional should be your next step.

Frequently Asked Questions

Below you can find the frequently asked questions about advisor agreements.

Can I use a financial advisor agreement template?

Using an investment advisor agreement template can save a business significant time and money, particularly in the startup phase. Generic templates not overseen by a legal professional should be avoided as they may leave the business exposed.

Do I have to have an agreement in place?

Using a service such as Aatos to put an agreement in place is highly recommended, even if it is not necessarily a legal obligation. Informal relationships — while common in certain industries — expose the business to a range of potentially costly legal issues in the future.

How do I change an advisor agreement?

Advisor agreements become legally binding once signed in the same way that standard employment contracts do. This means that neither party can unilaterally change the terms of the agreement as it is supported by UK employment contract law.