How to ensure each co-founder is pulling his own weight?

It doesn't sound like you are getting off to a great start with this "third party." From your description, it sounds like even if this third party is successful raising money for the company, you will still not feel like he deserves 25%. If this is the case, don't grant him 25% but grant him what you think he is worth to the company. You could tie his grant of options (or shares) to achieving certain deliverables if you wanted to, but then it would only be fair to do the same for yourself and your brother. Also, I'm not sure it is fair for you to ask the third party to pay you back for the patent you and your brother are contributing since: a) it sounds like the two of you are getting 75% of the shares which already compensates you for this, and b) it seems very hard to value this patent and somewhat arbitrary to ask your co-founder to pay for it. One last thing, you speak of him as a potential co-founder but then there is a "team of engineers." Are the engineers also founders?

Everybody should vest with a cliff

Vesting means that you all agree that you will each earn your shares in the company as you work in it overtime.

A cliff means that someone has to stay with the company for a certain period of time (e.g. a year), and at the end of the year all their shares they have earned up to that point vest. If they leave before the year, they get nothing.

There's several reasons why you want to vest shares with a cliff:

1. Protects the company from someone leaving with a 25% equity share
2. Allows you to vet out peoples' skills and contributions fairly
3. You can figure out if you all work well together in the first place
4. Chances are your idea/roles are going to change. You don't know what you have, so how are you going to decide what everyone should own?

Why a cliff?

You don't want every hire staying for 3 months then leaving with small chunks of equity. Overtime, you could lose 5% - 10% of your company this way.

Example:

You have 4 cofounders with shares divided equally (John, Bill, Sarah & Steve). You vest the shares over 4 years with a 1 year cliff.

John and Bill are programmers. Sarah is general business, and Steve is the "CEO and Fundraising". Everything is great with John and Bill chugging along on code, Sarah doing the incorporating and marketing, and Steve out raising money.

After two months Steve manages to raise money for you guys (woo!) but turns out to be a real jerk and you don't like working with him. During month three, Steve gets a job offer from Google that he "can't turn down" and can't work on the company anymore (bummer...) Steve claims that he has "done his job" and deserves his 25% now. But you guys are taking below market salaries and working 80 hours a week. You haven't even finished the product or got a customer. 90% of the hardwork is ahead of you. Steve stayed for three months. Why does he deserve 25%? Well, luckily you setup vesting with a cliff, and Steve gets nothing and your company can keep moving forward. No harm, no foul.

This happens all the time

Startups are hard and most people can't cut it. Someone in your team will not work out, and your first duty is to protect the company. If the person you're going to potentially work with doesn't agree to do vesting and a cliff, then they are probably not that passionate about the idea and you don't want to be working with them in the first place.

I do not trust this third party... I am afraid we will give him 25% and he will sit around while we do all the work and take his percentage of profits... we almost want him out altogether... I want him out due to his disrespect towards us...

So the guy doesn't respect you, and you distrust him and can't stand him. And it sounds like the main reason you want him around is:

our team of engineers think he is an asset and might walk if we cut him

This sounds like the business equivalent of marrying somebody you loathe because they have lots of money. If I were you, I'd ditch the startup. let the engineers walk, and keep my sanity and self-respect. Life is too short to trap yourself in a business with someone you hate.

And even if your characterization of him is completely mistaken, and he's really a great guy and would pull his weight, your distrust and personal dislike for him will almost certainly poison things.

Also, do you think we can find funding without having highly experienced co-founders in starting and managing a business, as long as we have a solid business plan and product? Can we do this without his credentials? That is what the engineers are worried about.

If you really think this guy is really such a jerk, you should verify his credentials. I've known a couple of technology wheeler-dealers who claimed wonderful track records, and did a lot of name-dropping. But when I later talked with people at the companies they claimed to have been involved with, my contacts had nothing good at all to say about these guys.

Look around your industry, and see if you can find some other co-founders who are experienced on the business side and who you feel you can trust. You're in the enviable position of already having a patent, so you don't have to worry much about them stealing your idea.