Knowledge Base: Safely issuing shares to advisors, contractors & foreign employees

Before allocating equity, it's crucial to define who is receiving the equity.

This article covers the following - jump to the needed section:

1. Advisors
   • Unapproved Options
   • Selling shares to Advisors
     • Platform steps: Pre-Funding, In-Round, and Post-Round
     • How does the Advisor claim SEIS
   • Issuing shares to Advisors
   • Issuing shares as they are earned
2. UK Employees
3. Foreign Employees
4. Investors (UK and Foreign)

Advisors

Many businesses bring on advisors who typically work part-time, often just 1-2 days per week. While the process of granting shares to advisors is similar to that of co-founders, advisors are not classified as “Founders” on the platform. This distinction means they do not sign key agreements such as the IP Assignment or Founder Service Agreement, leaving gaps in confidentiality, IP provisions, and other protections (more on addressing this later).

When involving advisors, it’s important to allocate their shares before a funding round to avoid diluting investors. There are several ways to structure this allocation, outlined below.

1. Unapproved options

An unapproved option scheme allows you to tie share allocation to specific milestones, such as time-based or performance-based achievements. For example:

• "For every month you work with us, you earn 0.1% of a share."
• "If you bring in a specific client, we will release X shares."

You can read more about unapproved options here.

Important: Are they a consultant or just providing services under a supplier agreement? It’s very important that it’s clear they are a consultant, so set up an advisor agreement / consultancy agreement between you and the consultant so it’s clear. This means when the options convert to shares you are protected by the leavers provision in the articles.

Shareholder protection: Options only convert to shares once milestones are achieved.

2. Selling shares to Advisors

Advisors can purchase shares, either at nominal value or a higher price. This approach ensures SEIS qualification, provided the advisor meets the SEIS criteria, such as holding less than 30%. SEIS-compatible shares are exempt from Capital Gains Tax (CGT) after three years, potentially saving advisors significant amounts during a business exit.

Shareholder protection: Reverse Vesting (via Articles of Association). Advisors providing "consultancy services" are typically covered under the company’s Articles of Association (“An ‘employee’ is broadly defined as; “an individual (excluding any Investor) who is a director of, employed by or who provides consultancy services to the Company or any other member of the Group”.)

If the advisor leaves they are subject to the reverse vesting provision in the articles - see here

The potential issue is this applies a one-size-fits-all approach to vesting, which may not align with the founders’ preferences for advisors. Additionally, the articles don’t address confidentiality, intellectual property, data protection or other considerations in a Shareholders agreement.

Therefore, founders can create a separate advisor agreement with a tailored vesting schedule that supersedes the Articles. It can also cover provisions for confidentiality, data protection, intellectual property, and other protections. You can download our advisor agreement here

Platform process depending on fundraising stage

Pre-funding round: Pre-funding round you need to be careful with issuing shares at their nominal value, especially if the total consideration is very low (e.g., just a few tens of pounds). HMRC guidance states: “For an investment to qualify under the Seed Enterprise Investment Scheme (SEIS1) the shares must be issued by the company in order to raise money for the purpose of the qualifying business activity…Whilst there is no minimum figure for a fund raise it is expected that the funds raised would exceed the cost of the share issue in question, otherwise the share issue cannot be said to have been for the purpose of the qualifying business activity.” In practice, this means that if you are issuing shares solely to advisors in order to offer SEIS (and there are no other arm’s length investors involved), the amount raised must be meaningful in its own right - typically in the region of £2,000 or more.

As part of funding round: If the advisor is included as part of an arms length funding round, then issuing their shares at nominal value is generally acceptable. Since other investors are participating, the overall round is considered substantial - you are bundling the advisor’s investment into a larger, qualifying raise.

Note: Your investors will see the discount offered to the advisor in the Term Sheet, so it’s important to proactively explain that this is intended to benefit and incentivise the advisor for their contribution to the business.

Post funding round:

How does the Advisor claim SEIS?

If you add the advisor to the pre-funding round cap table you will see their investment in the SEIS1 spreadsheet you can download. Note the date you add them to the cap table will be the share issue date on the spreadsheet. You need to create a separate submission for each day that you have issued shares (and for each share class issued and for SEIS/EIS). We document the founder process here.

If you add them as part of the funding round you treat them as any other investor and follow the steps here.

3. Issuing shares to Advisors

Shares can be issued directly to advisors. This approach might be appropriate if the advisor has already completed the work required, and you’re not concerned with vesting or incentivising them through SEIS shares to reduce their Capital Gains Tax (CGT).

Shareholder protection: See above (same as “Selling shares”)

4. Issuing shares as they are earned

An alternative approach is to issue shares only after they are earned. In this case, the Advisors sign an advisor agreement, and shares are issued incrementally upon meeting agreed milestones.

You need to disclose this to your investors - more or disclosures here. Alternatively, you can include an unallocated option pool on the cap table to account for future shareholdings. As each vesting milestone is met, you can draw from this pool and reduce its size accordingly. To be clear, this process does not involve issuing options from the pool at the time - it simply ensures that the cap table calculations work.

Shareholder protection: Only issued shares once a milestone has been met.

UK employees

If you want to incentivise UK employees the best method is through an EMI option scheme which we offer here. This is the most tax efficient method as your employees pay no tax when the option is granted and no tax when the options are exercised even if the shares have increased significantly in value since the option was granted. They only pay tax when they sell the shares. This Capital Gains Tax (CGT) is on the gain and the rate can be reduced by Business Asset Disposal Relief (BADR) if shares are held for 2 years or more. This reduces CGT, currently 24%, to 10%. The BADR rate will rise to 14% from 6 April 2025, followed by a further increase to 18% from 6 April 2026.

Foreign employees

If you want to incentivise foreign employees the best method is through an unapproved option scheme which we offer here. EMI is not eligible as your employees do not have a UK tax residency and may not pay UK taxes through the employer’s payroll (Pay As You Earn [PAYE] employees). With unapproved options there is no tax when the option is granted but tax is payable immediately when exercised as the employee is deemed to have received taxable earnings even though they have not received any cash (from a sale). This is deemed a Benefit In Kind (BIK) and income tax is payable at the marginal income tax rate. Similar to EMI, CGT is payable on the gain but not at a reduced rate - no BADR relief.

Investors (UK and foreign)

Getting shares into investors hands is very straightforward. You do this via a funding round. See our guide