Summary: Startup not paying wages or tax on employees, to claim unemployment benefit I have to report them.

Hi guys, I'd appreciate some outside perspective here.

I've been working with a startup for about two months as their CTO. Small team, three/four developers depending how you count. Handshake deal said moderate salary until series A but with equity.

I've been pushing and pushing for a contract stating the terms, but there always seemed to be something else the CEO had to do. However, I met the rest of the team and it all seemed legitimate.

Around the two month mark, I dug my heels in and said contract or I walk. Next day I have a meeting with the CEO and it comes out that there's no salaries being paid, people are working for equity. I explain that this isn't appropriate for my situation, to which the CEO responds with more work for me to do.

Obviously, I should walk away at this point (or ideally weeks before), but there are some twists:

1) The work that I produced for them is still mine, as no copyright transfer has been signed. They'll almost certainly be trying to sell this / bring it to investors.

2) It's not legal to work only for equity in my country, there's a minimum wage, and each employee has to be registered and tax paid on them to the government. I went to apply for unemployment assistance and was told that regardless of whether I was paid, I was considered employed, and thus had no entitlements. Furthermore, as I wasn't registered the company was not meeting its tax obligations in hiring me.

This brings me to the crux of my problem: If I want to claim unemployment benefit while I look for a real job, I must torpedo the old company. This is bad as it not only can hurt my reputation, it will negatively affect the co-workers who have previously worked for low wage and equity.

My feeling is to walk away and cut my losses, but I thought the community may have other suggestions.

Thanks for looking.