There is a general aversion to legal agreements among many private company owners. In many ways they view these agreements as obstacles to progress or as bureaucratic documents which often add delay and costs to a business relationship between two or more parties. As a private company owner, I understand this reluctance and have witnessed first-hand how such agreements can impede development. However, one area where it’s necessary for private company owners to utilize a legal agreement is with their advisory board members. While setting forth the expectations and responsibilities for both the company and the advisory board member, the agreement also plays a key role in advisory board recruitment as it demonstrates to prospective candidates your commitment to the role of the advisory board in assisting the company to achieve success.
The following are the top 10 provisions which should absolutely be included within your corporate advisory board agreement. Despite the fact that I practiced law for more than 10 years, this list (and the advice in this blog post) is from my perspective as a private company business owner with an advisory board, not as a lawyer. As with any legal agreement, you should have your own attorney review the document prior to execution. Without further delay, here is the list:
- Advisory Board Responsibilities: You need to set forth the expectations and responsibilities of the advisory board member in terms of what services (e.g. general strategic advice) they will be providing the company and what their time commitment will be (number of in-person meetings, conference calls, etc.).
- Company Responsibilities: The advisory board member should know what to expect from the company (e.g. prepared for meetings; materials distributed in advance, etc.).
- Compensation: The agreement needs to set forth how the company will compensate the advisory board member for his/her services. Whether it is equity, annual retainer, or a per-meeting fee, the manner of compensation needs to be addressed. I would also suggest that you agree to pay for any travel expenses related to the advisory board member’s attendance at a meeting.
- Independent Contractor Status: For tax and liability reasons, it is important that both parties understand that the advisory board member is serving in his/her role as an independent contractor and not as an employee or agent of the company.
- Intellectual Property: It should be clear that any ideas, inventions or developments that are conceived, reduced to practice or made by the Advisor during the performance of his/her services for the company, shall be fully assigned to the company. The last thing you want is a battle later on where an advisory board member believes they are entitled to an interest in an idea that came about during an advisory board meeting.
- Confidential Information: No matter how it is structured, a private company’s advisory board will almost always have access to the company’s confidential information (e.g. technical and non-technical proprietary information). The advisory board agreement should clearly state the obligations of the advisory board member with respect to that confidential information, including its return upon the termination of the agreement.
- No Conflicts: A “no conflicts” clause is a great addition to an agreement with advisory board members – it is an essentially a statement that the advisor is not aware of anything within the agreement which would conflict with his/her obligations with a third party.
- Term: Often times, the advisor’s commitment is one of several commitments that they have outside of their own career. Thus, it is helpful to provide them with a term length for their commitment as an advisor to your organization. I suggest a three year period as an “Initial Term” with the option to add additional terms upon mutual agreement of both the advisor and the company.
- Termination: Unfortunately, as with any business relationship there are occasions when the need arises to terminate that relationship for a variety of reasons. It is important to have termination language within the agreement that allows both parties to walk away at any time.
- Non-Solicitation: The agreement should have a provision that provides for a period of non-solicitation (usually a year) during which time the advisor agrees not to solicit or induce any employees or contractors to terminate their relationship with the company.
There are of course numerous other provisions which a private company owner may want to include in the agreement depending upon the particular circumstances. Furthermore, there may be state-specific provisions which should be included within the agreement. Therefore, the private company should have its lawyer review the agreement and should recommend that each advisory board member have their attorney do the same.
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