[koliber]

Let's say OP decides to play unfriendly hard ball and hold on to his 33% of shares. Could the remaining two partners force through a new allocation of shares, vesting over time but only to active members, which would dilute OP to near zero?

I am asking about who gets to decide what is considered fair dilution. Assuming good will on all sides, I like the idea of your suggestion. Assuming non-cooperation, I am wondering what the worst case could be for OP.

[nealbozeman]

It's hard in this case not to argue that he owns 33% of the 1.5mm company that the three have built until today. Diluting him out to effectively zero would be cause for criminal charges against the company. It's theft.

In the same vein, they can't raise the $500k and then immediately dilute the investors. That's also theft, called fraud.

He seems to have shown a lot of good faith in this matter so far.

[pc86]

It's a serious contract issue but it's not criminal.

The two founders own 66%, presumably 2/3 of the board seats (but if they can't even be bothered to write a vesting schedule they probably don't have a board at all). For the sake of argument if each of them own 10k shares (30k total), there is nothing criminal about the board voting to issue 100k new shares to the two remaining founders. So now they each own ~48% and OP owns ~4%. Shitty move? Yes. Morally and ethically terrible? Absolutely. Will OP sue them? I would hope so. Illegal? Not even a little bit.

The way you prevent this is by having a contract. But again, OP was just doing this with his buds so no need for a contract, right? This is why you sign a contract for anything you're doing that involves more than $100 in assets or a few weekends of time.

[mamon]

You cannot issue 100k new shares out of thin air... If the company is worth $1.5M, split in 30k shares then each share is worth $50. Issuing 100k new shares would require those two founders to invest additional $5M (which I assume they don't have).

[valuearb]

Sure you can. You issue the remaining founders options for 100k shares at an excercize price if $50 per share. You can probably even do it at $10 or $20 per share, since investors shares are likely preferred, and don't have vesting requirements, meaning you can discount common shares for illiquidity/fewer rights.

[doctorwho]

Shareholder oppression is criminal. Whether the actions they take constitute shareholder oppression or not is a matter that usually gets settled in court or arbitration.

[dchichkov]

I'm curious, would it be against YC ethics ( https://www.ycombinator.com/ethics/ ) to do a dilution like this? And what are the consequences for founders in the YC program (or alumni), that did it? Nothing? Case-by-case?