When does an advisor option count against the Rule 701 limit?

On the grant date. 17 CFR 230.701(d)(1) provides that any amount of securities may be offered in reliance on the rule, but that for purposes of the rule, sales of securities underlying options must be counted as sales on the date of the option grant. The 12-month ceiling in Rule 701(d)(2) is the greatest of $1,000,000, 15 percent of the issuer's total assets, or 15 percent of the outstanding amount of the class being sold, each measured at the most recent balance sheet date.

Can a startup advisor receive an incentive stock option?

No, not while they are only an advisor. 26 U.S.C. 422(b) defines an incentive stock option as an option granted to an individual for any reason connected with his employment by a corporation, granted by the employer corporation or its parent or subsidiary. Section 422(a)(2) separately conditions the favorable tax treatment on the individual having been an employee from the grant date until three months before exercise. An advisor who is not an employee receives a non-qualified option, and the spread between the strike price and fair market value is ordinary income at exercise.

How much equity should a startup advisor receive?

There is no legal answer to that question, and any number quoted as a standard is market convention rather than law. What I can tell you is the arithmetic: the grant is a percentage of your fully diluted capitalization, it dilutes every existing holder including you, it counts against your Rule 701 12-month ceiling on the day you sign it rather than on exercise, and it keeps diluting even if the advisor stops answering email in month three. The vesting schedule and the cliff, not the headline percentage, decide what the advisor actually keeps.

Is the non-compete in a California advisor agreement enforceable?

Business and Professions Code section 16600(a) provides that except as provided in that chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void. Section 16600.5(a), added by SB 699 effective January 1, 2024, adds that a contract void under the chapter is unenforceable regardless of where and when it was signed, and section 16600.5(e) gives the restrained person a private action for injunctive relief or actual damages, with attorney's fees running to a prevailing employee. A narrow confidentiality clause and a conflicts disclosure do the work that founders hope the non-compete will do.

Startup & Advisory

Advisor Agreement: build a starting draft free, or have me draft the grant around your cap table

Q: Does Rule 701 cover advisors and consultants?

Only conditionally. 17 CFR 230.701(c)(1) makes the exemption available to consultants and advisors only if they are natural persons, they provide bona fide services to the issuer or its parent or majority-owned subsidiaries, and the services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the issuer's securities. An advisor engaged mainly to open doors to investors is squarely inside that last exclusion.

The generator below produces a clean starting draft with live preview. It cannot see your cap table, your latest 409A, or whether the exemption your grant relies on is even available for this advisor. That part is my day job.

Sergei Tokmakov, California attorney, CA Bar #279869. Papering startup equity since 2011.

Build the free draft ↓ Have me draft or redline it: $750

Sergei Tokmakov, Esq., California attorney, CA Bar #279869 — Sergei Tokmakov, Esq.
California Bar #279869

The most common way an advisor agreement reaches my desk

You already have a ChatGPT or Claude draft of an advisor agreement

The clause language is probably fine. The risk is the six things the model had no way to know, because none of them are in its training data or in your prompt.

1. What 0.5% of your company isThe model wrote a percentage. Only your fully diluted cap table turns that into a share count, and only the share count dilutes anybody.

2. Whether this advisor is a fundraising advisorRule 701 is unavailable where the services are in connection with a capital-raising transaction. That is the classic advisor pitch.

3. That this cannot be an incentive stock optionAn ISO must be connected with employment by the granting corporation. A non-employee advisor gets a non-qualified option, taxed on the spread at exercise.

4. Your current 409A and whether the strike holdsThe strike price is not a drafting choice. It comes from a valuation the model never saw.

5. Whether a plan document exists for this grantRule 701 exempts sales under a written compensatory benefit plan or written compensation contract. Somebody has to have written one.

6. That the non-compete it wrote is void hereCalifornia voids restraints on lawful profession or trade, and the statute now reaches contracts signed in other states.

Have me harden the draft, $750 How I redline equity paperwork →

$750 flat: one advisor agreement drafted or redlined, written comments, up to three rounds of email revisions. Scope confirmed in writing after a conflict check; nothing here creates an attorney-client relationship.

Short answer

An advisor option is a securities sale, and Rule 701 counts the entire grant on the day you sign it, not on exercise and not as it vests: 17 CFR 230.701(d)(1) says that any amount of securities may be offered under the rule, but “sales of securities underlying options must be counted as sales on the date of the option grant.” So the advisor who quits in month three still consumed your 12-month capacity in full. The second half of the problem is who the advisor is. Rule 701(c)(1) makes the exemption available to advisors only if they are natural persons providing bona fide services, and only if those services “are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuer’s securities.” An advisor whose actual job is opening doors to investors is the one case the rule carves out, and it is also the most common reason founders hand out advisor equity. The generator below writes a sound baseline; whether your grant sits inside an exemption is a judgment call about the advisor, not a template setting.

What does this grant actually cost, and what does the advisor actually keep?

Every number here is your own. I supply no benchmark percentages, because there is no legal standard for advisor equity and any number quoted as one is market convention. The calculator does the arithmetic your cap table will do later.

Fully diluted shares outstanding

Advisor grant, percent of fully diluted

Total vesting months

Cliff months (0 for no cliff)

A cliff is the only term that lets you recover anything from an advisor who stops showing up early.

Months they actually serve before stopping

Current fair market value per share, from your 409A (USD)

Price per share you are modeling at exit (USD)

Shares granted–

Vested when they stop–

Forfeited–

Counted against Rule 701 on grant date–

Have me paper this grant, $750

Arithmetic on your own inputs, not a valuation, a tax opinion, or legal advice. The Rule 701 figure is the grant-date amount under 17 CFR 230.701(d)(1); your actual 12-month ceiling is the greatest of $1,000,000, 15 percent of total assets, or 15 percent of the outstanding class, which needs your balance sheet.

Where advisor grants actually bleed

Five consequences, not definitions. Each one is a place I have watched real money change hands. Tap to open.

The grant consumes your Rule 701 capacity on the day you sign itNot on exercise, not as it vests, and not net of forfeiture

Rule 701 is the compensatory exemption most private companies rely on to issue equity to people without registering anything. Its counting rule is unforgiving. Under 17 CFR 230.701(d)(1), any amount of securities may be offered under the rule, but “sales of securities underlying options must be counted as sales on the date of the option grant.” The ceiling in 701(d)(2) is a rolling 12-month figure: the aggregate sales price or amount sold must not exceed the greatest of $1,000,000, 15 percent of the issuer’s total assets, or 15 percent of the outstanding amount of the class being sold, the latter two measured at the most recent balance sheet date.

The failure mode I see. A company hands out a dozen advisor grants in a quarter, most of them lapse unexercised, and the founders assume nothing was consumed. The rule counted every one of them on its grant date. Run the numbers in the calculator above, then add up every grant in the trailing 12 months, not just this one.

Verified against 17 CFR 230.701 in the official eCFR text, Title 17 issue date 30 July 2026.

The fundraising advisor is the one Rule 701 does not coverThree conditions, and the third is the one founders trip on

Rule 701(c) extends the exemption to consultants and advisors, and 701(c)(1) sets three conditions: they must be natural persons; they must provide bona fide services to the issuer, its parent, or majority-owned subsidiaries; and the services must be “not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuer’s securities.” Read that third condition against how advisor equity is usually pitched. “He will introduce us to his investor network” and “she can get us in front of the right funds” describe services in connection with a capital-raising transaction. The condition is not about whether the advisor is registered or paid a success fee; it is about what the services are.

Two other conditions people miss. First, the advisor must be a natural person, so a grant to the advisor’s consulting LLC is outside 701(c)(1)(i). Second, the exemption runs to sales under “a written compensatory benefit plan (or written compensation contract),” which means the paper has to exist before the grant, not after the round closes.

Verified against 17 CFR 230.701(c) in the official eCFR text, Title 17 issue date 30 July 2026.

Your advisor cannot have an incentive stock optionThe tax code ties an ISO to employment, and an advisor is not an employee

Founders often copy an employee option grant and swap the name. That silently changes the tax outcome for the advisor. Under 26 U.S.C. 422(b), an incentive stock option means an option granted to an individual “for any reason connected with his employment by a corporation, if granted by the employer corporation or its parent or subsidiary corporation.” Section 422(a)(2) then conditions the favorable treatment on the individual having been an employee of the granting corporation, or a parent or subsidiary, at all times from the grant date until the day three months before exercise. A non-employee advisor satisfies neither. The grant is a non-qualified option, and the spread between the strike price and the fair market value at exercise is ordinary income to the advisor in the year of exercise.

Why this shows up as a dispute, not just a tax line. The advisor exercises years later, discovers an ordinary-income bill on a paper gain in a company with no market for the shares, and comes back to the founder with the agreement in hand. The fix is disclosure at grant, in the agreement, in plain language.

Verified against 26 U.S.C. 422 at uscode.house.gov and law.cornell.edu on 2 August 2026. Section 422 was last amended by Pub. L. 115-97 (2017), which did not disturb the employment requirement.

No cliff is the convention, and the convention is expensiveThe arithmetic of an advisor who stops answering in month three

Advisor templates in wide circulation use monthly vesting over 24 months with no cliff, on the theory that advisors deliver value immediately and a cliff is unfriendly. That is a business judgment rather than a legal rule, and it is worth pricing before you adopt it. With no cliff, an advisor who takes two calls and then goes quiet in month three has vested one eighth of the grant permanently. With a six-month cliff, the same advisor vests nothing. Neither answer is right in the abstract. What is not defensible is adopting the no-cliff default without knowing what it costs you at your own share count, which is exactly what the calculator above computes.

The clause I read next. Single-trigger acceleration on a change of control means an advisor who has served four months out of twenty-four collects the whole grant the day you are acquired. Acquirers price that. If your agreement has single trigger, know it before the term sheet, not during diligence.

The disclosure duty above $10 million, and the non-compete that is void hereRule 701(e), and California section 16600

Two provisions bite later than founders expect. First, Rule 701(e) requires the issuer to deliver a copy of the plan or contract to investors, and if the aggregate sales price or amount sold in any consecutive 12-month period exceeds $10 million, to deliver additional disclosure, including risk factors and financial statements, a reasonable period of time before the date of sale. That threshold was raised from $5 million to $10 million by SEC Release 33-10520, effective July 23, 2018, so an older memo may still quote the smaller number.

Second, if you are in California, the restrictive covenant your template pasted in is void. Business and Professions Code section 16600(a) voids every contract by which anyone is restrained from engaging in a lawful profession, trade, or business, and section 16600.5(a) makes a contract void under that chapter “unenforceable regardless of where and when the contract was signed.” Section 16600.5(e) gives the restrained person a private action for injunctive relief or actual damages, with attorney’s fees awarded one way, to a prevailing employee.

What actually protects you. A real confidentiality clause, a present assignment of inventions rather than a work-for-hire recital, and a written conflicts disclosure listing the advisor’s other boards. Those three survive; the non-compete does not.

Rule 701(e) and the $10 million threshold verified against the official eCFR text (Title 17, issue date 30 July 2026) and SEC Release 33-10520, 83 FR 34940, at govinfo.gov. Sections 16600 and 16600.5 verified at leginfo.legislature.ca.gov on 2 August 2026.

Questions I get about advisor agreementsRule 701, ISOs, grant size, vesting, non-competes

When does the option count against my Rule 701 limit?

On the grant date. Rule 701(d)(1) says sales of securities underlying options must be counted as sales on the date of the option grant. Forfeiture later does not give the capacity back. The 12-month ceiling in 701(d)(2) is the greatest of $1,000,000, 15 percent of total assets, or 15 percent of the outstanding class.

Does Rule 701 cover advisors at all?

Conditionally. Rule 701(c)(1) requires that the advisor be a natural person, that the services be bona fide, and that they not be in connection with the offer or sale of securities in a capital-raising transaction and not promote or maintain a market for the issuer’s securities. A fundraising-introductions advisor is the case that condition was written to exclude.

Can my advisor get an ISO?

Not while they are only an advisor. Section 422(b) requires the option to be granted for a reason connected with the individual’s employment by the granting corporation or its parent or subsidiary, and section 422(a)(2) requires continuous employment from grant until three months before exercise. Advisors receive non-qualified options, taxed as ordinary income on the spread at exercise.

How much equity is standard for an advisor?

There is no legal standard, and I will not quote one as if there were. The percentages circulating in accelerator templates are market convention, not law, and they were written for a different share count than yours. What matters is the arithmetic: what the percentage is in shares, what vests if the advisor stops early, and what the whole grant consumed on the day you signed it.

Can I just use the free generator below?

For a small grant to a single advisor where you already have a plan document, a current 409A, and board approval, a generated agreement plus a careful read is a defensible starting point, and I built the generator so that it would be. Where I would not rely on it alone: when the advisor’s real role touches fundraising, when no plan document exists for the grant to live inside, when the acceleration terms have to match your existing plan, or when the advisor is also an investor or a customer.

Free advisor agreement generator: a starting draft, not a signable contractFill the form and the document builds in place with live preview. Word, PDF, and print export. Use it to see the whole structure before you commit to a number.

Read this before you use the output. This generator assembles a standard advisor agreement from your form inputs. It does not know your cap table, your 409A, whether a plan document exists, or what this advisor is actually being hired to do. It is not legal advice, and using it does not make me your attorney.

You now have a draft I have never read. It is a sound starting point and a poor finished contract, because it was assembled from your form inputs, not from your cap table. If a real advisor will sign this, the $750 flat fee covers me redlining exactly what you just generated, up to three revision rounds by email.

Send me this draft: $750

Work with me on it

If one document is all you need, buy the one document. I will tell you when your grant needs less paperwork than you think, and when it needs a plan document underneath it before anyone signs.

Most single grants land here

Advisor agreement, drafted or redlined

$750

Drafted around your grant, or redlined against the draft you generated or the advisor’s paper
Written comments on grant size, vesting, cliff, acceleration, IP assignment, and the exemption the grant relies on
Up to three rounds of email revisions

Request this package, $750

Advisory program or plan-level work

$1,200

Several advisors on one program, or a grant that has to sit inside an existing equity incentive plan
One complex or compliance-sensitive agreement, drafted or redlined
Coordination with your plan document, option grant notice, and board consent where they overlap

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Written attorney consultation

$240

One narrow question answered in writing: the exemption, the acceleration clause, the ISO problem
Send the draft and your question; get issues, risks, and next steps
Not a full redline; the honest choice when you need an answer, not a document

Request this package, $240

Every engagement starts with a conflict check and written confirmation of scope. Overflow beyond the flat fee is billed at $300 per hour by invoice, and I tell you before that happens. No free consultations, case evaluations, or document review.

Disclaimer. This page is general legal information, not legal advice. Using the generator, reading this page, or emailing me does not create an attorney-client relationship; that requires a conflict check and a written engagement agreement. Generated documents are starting drafts. Statutes, regulations, and cases change; every citation on this page was verified against the primary source on 2 August 2026, at the official eCFR for 17 CFR 230.701, uscode.house.gov for 26 U.S.C. 422, govinfo.gov for SEC Release 33-10520, and leginfo.legislature.ca.gov for the California sections. I am licensed in California. I do not carry professional liability (malpractice) insurance, and I give you that disclosure in writing with every engagement agreement.

Sergei Tokmakov, Esq. · California Bar #279869 · owner@terms.law