ANALYSIS · Leadership

What is an advisory board? Advice without fiduciary duty for US owners

In our reading of Delaware's corporate code, an advisory board is a set of contracts, not a governing body, and how you direct and pay advisers decides whether it stays one.

Rendal Post Analysis Desk · Published November 9, 2026

For an owner who wants experienced outside judgment without sharing control, an advisory board looks like the obvious compromise. So what is an advisory board in legal terms? Our reading of the primary sources is that it is not a governing body at all. It is a set of individual service contracts grouped under one name. The comfort it gives the owner and the advisers lasts only while everyone behaves the way that description implies. In our reading, two choices put the most pressure on that line: how much authority advisers exercise, and how they are paid.

Where the law puts power

Delaware's General Corporation Law says a corporation's business and affairs "shall be managed by or under the direction of a board of directors," unless the code or the certificate of incorporation says otherwise, according to the statute. The same subchapter covers the rest of the setup. Bylaws set the number of directors unless the certificate of incorporation fixes it, and directors do not have to be stockholders unless the certificate or bylaws require it. The board can fix director pay unless the charter or bylaws restrict it, and holders of a majority of voting shares can remove directors, subject to exceptions (DGCL Subchapter IV).

The board may also create committees and hand them board powers, but every committee is made up of directors (Delaware Code). In our reading, that leaves no place in the statutory structure for an outside panel that holds authority. On that reading, advisers have no vote, and they cannot sit on a board committee unless they first become directors.

The code does describe a role that suits advisers. Directors and committee members are fully protected when they rely in good faith on opinions or reports from someone they reasonably believe has professional or expert competence, as long as that person was chosen with reasonable care, the statute provides. That suggests the safest job for an advisory board is to supply expert input. The decisions themselves stay with the board, which makes and records them, even when that board is just the owner. Delaware allows a board made up of a single natural person (DGCL).

How advice turns into duty

Cornell's Legal Information Institute defines fiduciary duty as a legal obligation on someone who has been given authority to act for another person or company. It requires that person to serve the other party's best interests, not their own. Such a relationship exists, it says, when one party "explicitly or sometimes implicitly places trust and confidence in another" and the other accepts responsibility for acting on its behalf (Cornell LII). Under agency law, an agent acting for a principal owes duties of obedience, loyalty and care, and corporate directors carry those duties too (Cornell LII).

In our view, the word owners should focus on is "implicitly," as Cornell puts it. Nothing in the definition depends on a title or a formal appointment. Suppose an adviser is invited to negotiate with a key customer, approve a hire or speak for the company in a dispute. On a plain reading, that adviser is being asked to act on the company's behalf, and the owner is placing in them the kind of trust the definition describes. The sources do not say how a court would treat any specific arrangement, and that is a question for counsel. What the definition suggests is that conduct, not labels, decides which side of the line someone is on.

Delaware's indemnification section points the same way. It lets a corporation indemnify and insure people who are or were its directors, officers, employees or agents, or who serve in those roles elsewhere at its request (DGCL). In our reading, each of those roles acts for the company in some way. So if an adviser asks for indemnification, the owner and counsel should take it as a cue to ask which of those roles the adviser is actually filling.

Paying advisers in equity

For a company that does not file public reports, one federal route for giving stock or options to advisers is the exemption for compensatory plans at 17 CFR 230.701. Generally, it is available to issuers that are not subject to Exchange Act reporting and are not investment companies that are registered, or must register, under the Investment Company Act (17 CFR 230.701). It covers offers and sales made under a written compensatory plan or compensation contract to employees, directors, officers, consultants and advisors (17 CFR 230.701).

Advisers face a stricter test. They qualify only if they are natural persons and provide bona fide services to the issuer or certain affiliated entities, the regulation states. Their work also cannot be tied to selling securities to raise capital or aimed at promoting or maintaining a market in the company's stock. The regulation says it cannot be used for schemes whose real purpose is raising capital (17 CFR 230.701).

In our reading, three consequences follow. Grants should go to the adviser as an individual, not to a consulting firm the adviser owns. Each grant belongs in a written plan or contract. And an adviser whose real value is introducing investors is a poor fit, because the regulation excludes that kind of work.

There are size limits. Sales under the exemption in any consecutive 12-month period cannot exceed the largest of $1,000,000, 15% of the issuer's total assets, or 15% of the outstanding amount of the class being sold, measured at the latest balance sheet date (17 CFR 230.701). Options count as sold on the day they are granted and are valued at their exercise price (the regulation). Once sales within a 12-month period pass $10 million, the issuer must also give recipients extra disclosure before the sale, including risk information and financial statements (17 CFR 230.701).

The exemption only removes the registration requirement. Antifraud and civil liability rules still apply, the issuer must also comply with any applicable state securities law, and the shares are restricted securities that can only be resold with registration or another exemption (17 CFR 230.701).

Paying in cash and the contractor question

Paying advisers in cash raises a tax question instead. For employees, employers generally must withhold income, Social Security and Medicare taxes, pay the employer share of Social Security and Medicare, and pay unemployment tax. Payments to independent contractors generally require no withholding, according to the IRS. The IRS sorts the evidence into three groups: behavioral, financial and type of relationship. The questions are whether the company directs what the worker does and how, whether it controls business matters such as pay, expense reimbursement and tools, and whether there are written contracts, employee-style benefits, an ongoing relationship and work central to the business (IRS).

There is no "magic" number of factors, and "no one factor stands alone in making this determination," the IRS says. It tells businesses to look at the whole relationship, focus on the right to direct and control, and document every factor they used. If status is still unclear, either side can file Form SS-8 for an official ruling, which the IRS says may take at least six months. A company that treats an employee as a contractor without a reasonable basis may be held liable for that worker's employment taxes, and the relief provisions will not apply (IRS).

In our reading, the IRS control test and the fiduciary definition reward the same discipline. Picture an adviser who sets their own methods, is paid per engagement under a written agreement and stays out of management. That person looks like a contractor, and also like someone giving advice rather than acting for the company. Now picture an adviser who is told how and when to work, given operating duties and offered benefits. That person drifts toward employee status and agency at the same time. The sources do not say the two tests are the same, but the overlap is useful when you design the role.

What to do with this

Write the agreements before you pick the people. Give each adviser a written agreement stating that they make recommendations, have no authority to bind or represent the company, and have no vote. In our reading, that keeps the arrangement on the advice side of Cornell's definition. Leave decisions with the board, where Delaware's code places them, and record them in minutes or in written consents, which the statute allows when every director agrees. If an adviser needs real authority, the cleaner path, on our reading of the code, is to elect that person a director and accept the duties that come with the seat.

For equity, use a written plan, grant to individuals, describe the bona fide services each one provides, and keep fundraising roles out. Track rolling 12-month totals against the limits in section 230.701, and check state securities law alongside the federal rule, as the regulation requires.

For cash, document how you weighed the behavioral, financial and relationship factors, as the IRS advises. In our view, do it before the first invoice. Consider filing Form SS-8 if the answer is truly unclear, and plan for the months-long wait.

An advisory board earns its place by sharpening the owner's judgment. In our reading, once it starts making decisions on the owner's behalf, it has stopped being an advisory board.