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Comment by onion2k | Hacker News Reader

The fact is you've only just launched, you've not proved the market for the app actually exists yet, there are still technical problems to overcome, and the hard part of running a startup, eg getting customers and scaling up, hasn't actually started yet (feedback means very little; it's all about actual sales for real money).

You could just walk away and keep the shares, but as you're a minority shareholder your stake will be diluted to approximately nothing fairly soon.

You're in a really bad position here. If Jim wants to be a %^&% about this then you're going to get screwed.

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I'm not sure how it would work in this case in the US, but we're from Europe - my 40% will stay 40% forever. I want to part our ways on a good terms though and don't want to leave the startup in a situation like this. On the other hand, the work I've done is pretty significant and I wouldn't like to see myself empty-handed if the company is sold in the near future

my 40% will stay 40% forever

I don't think it will.

Jim can issue new shares so long as the majority of shareholders agree (which is Jim agreeing with himself) and just not give you any. Consequently the percentage of the available stock you own is diluted, and you end up with less and less of the company. This is how it works in the UK (where I am).

Normally share dilution happens when new investors come on board and put some money in which increases the value of the company so the value of the shares doesn't really change. If there are 100 shares in the company and the company is worth £1000 each share is worth £10. If you own 40% that's 40 shares worth £400. If 100 new shares are issued and sold to an investor for another £1000 then the company is worth £2000 and there are now 200 shares still worth £10 each. Your percentage has dropped to 20% but the value of your investment is still worth £400 (ignoring the value of dividends, voting rights, etc). The same mechanism can be used to screw people though if more shares are issues without a commensurate increase in value.

Yeah, that's right, but in our country, there are no shares in our type of company, so the ownership is derived from the initial investment (this is most of the times fictional, in our case it's 60:40 as mentioned before), so even if Jim owns the majority stake, he can't do anything about mine

Really? One trick I've seen that comes to mind is that the controlling shareholder sells the company to himself (really another operating entity) at a low-ball price. You'll get a little bit of cash but your 40% would be gone.

Ah. Cool. That's quite fortunate then. :)

Yeah, I would have been in a much worse situation if we had the company structure you've mentioned :)

If it's all as you say then since Jim is saying he wants everything and you should get nothing despite the fact hat you legally own 40% of the company without condition, I'd now be a hard ass, assert I own 40% of the company, and that I intend to defend that ownership. Put Jim on the defense. By saying you owe nothing he just told you he intends to steal two years of your full time work, which I'd estimate has a street value of at least $250,000. Someone who just told me they plan to steal a quarter million dollars of something I own is my enemy and a serious threat that requires professional legal assistance to defend against. Your ownership might be worth nothing that you can ever get back, but the labor and expertise you contributed still has a value that you yourself invested in the company and morally validates your ownership of 40% in addition to the already established legal fact.

Right, thanks a lot. We are friends and I've told him that I'm flexible & willing to find a reasonable solution that would be fair to both of us, but the fact that he doesn't want to talk about it at all really puts me in the position you've described. The thing I'm not sure about though is the ownership of the app - if he said to me that he'll simply form another company, I guess I'll wait if they make something of it and then I'll come back asking for a fair share

On reflection I really shouldn't have assumed your company structure was what I imagined it to be. I apologise for that.

:) No problem

What country and type of company is this?

I wouldn't like to disclose my country & the company type since I don't want to get into trouble over the possible NDA that I may have to sign, but it's not a US C-Corp-like where you can issue shares and stuff like that. the ownership is derived from the initial investment (this is most of the times fictional, just to establish the ratio - in our case it's 60:40 as mentioned before)

You can't actually do that in the UK, there are stringent protections for minority shareholders to stop these exact shenanigans.

If Jim issued himself more shares for a nominal fee, he would have to offer the OP the same deal.

Yes, share dilution might happen with genuine investors, but no he can't just dilute out the OP on his own to 'screw' him.

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