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Our startup has a person who holds a very high percentage of the company's common stock.

We don't have any money yet, and we've been working for a year.

This guy has done an extremely minimal amount of work (maybe 1 hour per week) since we started. His effort is not enough to qualify for any type of equity. We made a mistake by originally agreeing to give him stock, but we had higher expectations that he just didn't fulfill (though according to him he fufilled those expectations).

We want him out. What options do we have to completely kick him out and not have him part of the company anymore? Myself and the other cofounder have majority shares.

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Ouch. I feel your pain, sorry to hear it didn't work out. I take it that you didn't have a vesting schedule, right? – Paul Cezanne Jan 27 '12 at 0:21
@PaulCezanne nope... – pasham Jan 27 '12 at 0:47
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Assuming he is fully vested and the stock is not restricted in any way then clearly he owns it and it is his property. Trying to take something away from him against his will is tantamount to theft; the best you can do is buy it from him at whatever price you can agree on.

Your other option is to simply walk away from the company. You state it has no money, does it have any customers? If the company has no assets just walk away and you and your friend start a new company. Did you sign anything like a non-compete agreement that would prevent you from doing this? Remember as far as software is concerned (if you wrote any), that belongs to the person that wrote it unless there is some other agreement. And it certainly sounds like the company has not purchased the software from you.

Perhaps the best way to look at this is as a valuable learning lesson and don't make the same mistake next time.

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The problem with walking away is that the work done = property = assets of the company. Starting fresh, in the same field, opens you to all kinds of legal issues regarding stealing intelectual property from the other company which then can stall the new venture. Basically the poster gave his shares away, he has to live with it. – NetTecture Jan 27 '12 at 5:07
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NetTecture: The IP may be the property of the company, but if no assignment of rights to the IP was made, and the creator was not paid, then it may not. Obviously one would want to consult an IP lawyer if there is valuable IP. – JonnyBoats Jan 27 '12 at 16:28
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Strategy 1: Dillute the shares. Award yourselves options based on your performance. You have majority ownership so push through an options package.

Strategy 2. Salary. Pay yourselves a lot. From his equity.

Strategy 3: Chicken. If you are the assets in the company. You play a game where you raise capital based on high valuation. If he is in, you are not and vice verca. If he is in you quit the company and let it fold. He has effectively given you money. If he is not in, he is dilluted.

Strategy 4: Start a subsidiary. Do a private placement selling stock in the sub to all owners of parent. If he is not participating and he is effectively dilluted, make sure sub rakes in most of the profits.

I mean - sneaky lawyers know how to do this sort of thing.

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