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Concept of advisory shares

Advisory shares are a type of equity instrument that are used to provide advice and consultation to the company. These shares do not confer voting rights, and the holder is not entitled to receive any dividends or other distribution of profits. In India, advisory shares are becoming increasingly popular, particularly among start-ups and early-stage companies.

This article will discuss the relevant provisions and importance of advisory shares in India.

Provisions of Advisory Shares in India


There are no specific provisions regarding advisory shares in the Companies Act, 2013 or under SEBI guidelines in India.

Advisory shares can be issued by a company to a person who has expertise or experience in a specific area, and who is willing to provide advice and consultation to the company. The holder of advisory shares does not have any voting rights, and is not entitled to receive any dividends or other distribution of profits. The shares can be converted into equity shares at a later date, subject to the approval of the company's board of directors and shareholders.
However, companies in India can still issue shares to their employees or directors through various schemes, such as Employee Stock Option Plans (ESOPs) or Stock Appreciation Rights (SARs), which function similarly to advisory shares in providing equity-based compensation. These schemes are governed by their own specific regulations and guidelines.


Importance of Advisory Shares in India


Advisory shares can be an effective way for start-ups and early-stage companies to attract experienced professionals who can provide valuable advice and guidance. In many cases, these professionals may not be able to invest large amounts of capital in the company, but they may be willing to provide their expertise in exchange for equity.

Advisory shares can also be used to incentivize key employees and consultants. By offering these shares, the company can align the interests of these individuals with those of the company, and encourage them to work towards the long-term success of the business.

Conclusion

In conclusion, advisory shares are a useful tool for start-ups and early-stage companies in India. They can help attract experienced professionals, incentivize key employees and consultants, and conserve cash. However, it is important for companies to be careful when issuing advisory shares, and to ensure that the holder is truly providing valuable advice and guidance. Companies should also be aware of the regulatory requirements for issuing these shares, and should consult with their legal and financial advisors before proceeding.
Overall, while there are no specific provisions for advisory shares in India, companies can still offer equity-based compensation through various schemes that are governed by their own regulations and guidelines.

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