Legal Question in Securities Law in California

Re: working for stock

The stock certificate can be revealing, but generally speaking the certificate itself does not create or define your rights. The relative rights of holders of the stock, or one of the classes of the stock, of a corporation are defined in the corporation's Articles of Incorporation (which set forth how many shares and of what classes the corporation is authorized to issue), in the bylaws (where details regarding stock issuance, voting and transfer rules are often found), in resolutions adopted by the board of directors, in agreements between the founding stockholders or between them and the corporation (buy-sell, anti-dilution, preemptive rights, cumulative voting, etc.). In a few cases, some governing rules and restrictions might be found in corporate filings with regulatory bodies such as the SEC or Commissioner of Corporations.

Often, the biggest risk of someone who is not an insider getting paid in shares is that stock shares are like the paper currency of a third-world country. If they don't have enough, they print more. Your 10,000 shares may represent a 10% ownership stake today; next month, you may be diluted down to 2% or even .00002% by the corporation issuing more stock to its insiders, newcomers, venture capitalists or whomever.

The rules on transferability often are hinted at by a legend on the stock certificates, but to know exatly what they are, to whom you can transfer and under what conditions, you'll need to dig a lot deeper

I'd say dilution and transferability are your major risks, but even if there is antidilution protection and relatively free transferability, you have many other risks in taking stock instead of cash. The market for minority interests in non-public companies is very thin and weak and you may be stuck with theoretically valuable stock but no one to sell to, no dividends, and no voting power. Except in unusual cases, a shareholder cannot oblige a company to buy or redeem its shares.