[onemoreact]

If you take reasonable precautions.

A) There are few legal ways of really screwing over investors. B) You can sue for most of the legal ways.

Unforgettably, it's vary easy to screw yourself over when dealing with a start up. But, the real problem IMO is that employ's generally have less leverage and can't afford to sue. "We got an offer that's very good for us and acceptable to the investors. So, sure you get nothing but I don't need to care because this is no longer my company have a nice life."

[lsc]

As for A, how do I keep the majority shareholders from voting to bring in expensive management, rent expensive offices and equipment, then issuing more stock when they run out of money and repeating the process until I am diluted to nothing?

I mean, I've worked at many places where that looks like the company plan; they spend all their revenue, which is fine, but then they act like the investment money is revenue as well. It's like they plan for explosive growth, which is great, but they buy stuff that only makes sense if that explosive growth were real, and it ends up killing the company when the growth turns out to be only reasonable.

Sure, if the majority shareholders end up voting themselves huge bonuses or spending most of the company money on consultants that happen to be their friends, sure then I can sue them and maybe get something back; but the first case I describe is far more common, and the result, really, is the same.

[onemoreact]

The board of directors is based off of stock holders and can always fire the CEO and bring someone new in. But, there is also legal protections for minority shareholders should the majority shareholders decide to dilute the minority shareholders etc. Most notably they can forcibly sell there shares forcing them to dissolve the company if necessarily. But, they can also sue for damages should management fail to protect their interests.

See: C. United States http://www.bc.edu/bc_org/avp/law/lwsch/journals/bciclr/23_2/... As dissolution is viewed as a drastic remedy,169 courts and legislatures have created remedies for oppressed minority shareholders that fall short of requiring the extinction of the corporation.170 Examples of alternative remedies generally include judicial action by means of an injunction or order, appointment of provisional directors or custodians, and buyouts.171 Buyouts, however, have been the focus of alternative relief.172