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Future Services Can’t Buy Shares in CA but *Can* Buy LLC Membership

Label saying "100% free", symbolizing buying an equity interest by future services rather than cashFuture services seem like a great no-cost way to buy equity in a startup. In California, however, whether you legally can buy equity with future services depends on whether the startup is a corporation or a limited liability company (LLC).

Corporations Code Section 409(a)(1) specifies the types of “consideration” that can be paid for corporate shares. These include, for example, “money paid; labor done; [and] services actually rendered to the corporation or for its benefit or in its formation or reorganization”.

However, “neither promissory notes of the purchaser [subject to certain exceptions] nor future services shall constitute payment or part payment for shares of the corporation“. So a California corporation cannot grant shares in exchange for future services.

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