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I am about to join a project as a CTO role and the two people who started this project are willing to give me some company shares besides cash payment.
How do I negotiate the contract to avoid share dilution? Also, how do I determine how many shares are appropriate for my work?
Realistically, you can not avoid dilution. Dilution is necessary for your shares to gain value from external investment. There is such a thing as an anti-dilution clause but to be blunt it’s not for you and they will not agree to one.
There is no objective amount of shares you “should” get, but if you are not a founder but are one of the first employees, .5-1%, more or less, is a feasible ask. (Or 3% if you are a seasoned exec, which you are not).
This may be out of your reach but here's the theory anyway.
You would essentially need veto power over new shares being issued, and even then it would be common to be forced to agree to give up whatever control you have, as a precondition for further financing at some point in the future (unless the company completely shuns outside financing, fairly rare).
So while your stated goal is hopelessly unrealistic, bring up the issue anyway. Act very concerned and uncomfortable with receiving shares instead of the full market cash rate (as you should be).
The goal is to try to get any means you can to obstruct future financing later, so that you will have to be given some bribe in exchange for giving it up if/when the time comes.
Obviously you can't ask for that directly or even mention it like that. If you want to push things, ask for something that will receive a counter offer, and be willing to settle for a package that includes the company laws requiring unanimous consent of shareholders to further change them, so as to protect your interests. If you somehow get that, it's the start. In the unlikely event of success to the point of equity financing, other more powerful minority shareholders (very possibly the founders themselves at that point) will eventually do the rest, as they will have roughly similar interests. You just need to make sure you're along for the ride, and have some leverage against the rules of the game being changed when one group of shareholders decides to force out another group, which is a real thing. You need to be super friendly and innocent the whole time, but amiably stubborn.
Also make sure you never get put into a class of shareholders different from the founders.
UPDATE - If you're CTO with that level experience, and the business is tech heavy and specialized such that you bring something to the table they can't get elsewhere, asking for status similar to a co-founder isn't so outlandish.
This is a two man company. So if they cannot get started without help, then thats a bit of a flag unless you have a special skillset they need. Small starting companies offering shares are usually trying to keep costs down rather than attract competent talent.
So it's important to look at their projects and see if everything is actually viable with what they have. Also analyse the commitment of the two owners. If they have jobs and are doing this part time, then they're not fully committed, which increases your risk.
When it comes to shares, you need to look closely at everything else first, a 20% share of zero is the same as a 5% share of zero.
