How can I buy/sell shares?

Small Business Advice: Investor has $50,000 for 1/3 of startup company, founders have only $20,000 for 2/3 of company. How to go about allocating shares as well as share prices?

• During the in corporation of a company, my business partner and I decided to put in $1000 for 1000 shares in the new company. The equity was split 33%, 67%. So I had 670 shares, and business partner had 330 shares. Soon after, an investor came along and he wanted to put in $50,000 for 1/3 share of the company. However, our shares were 'purchased' at $/share hence $1000 gave us 1000 shares. If the investor purchases shares from the company at $1/share he would have 50,000 shares which will easily dwarf the shares that the founders own. This would not make any sense. So, the founders decided to put in $10,000 each and each get 1/3 share of the company. We indicated that we would use the $20,000 ($10,000 each x 2) to purchase our total shares at $0.20/share instead of $1/share to make it 100,000 shares (0.2 x 100,000). Now that we have 100,000 shares, and the investor has 50,000 shares, we would then be able to allocate 1/3 share to the investor as 50,000 shares over 150,000 shares make 1/3.  So that being said, we now have a paid up capital of $70,000 (10,000 + 10,000 +50,000) and the total shares at 150,000 shares. We posted this to the corporate secretary handling our incorporation to process it as the new company structure, we were told that this cannot be done. Mainly because of the share price difference i.e $0.20/share and $1/share. The problem in summary is this: An investor is coming in with $50,000 for 1/3 of the company. We have only $20,000 for 2/3 of the company. How do we structure the share prices to make it so that we have 2/3 shares of the company and the investor has 1/3 shares of the company even though we have a smaller monetary contribution. Of course if my understanding of this whole share price issue is totally warped, please feel free to correct me. Thanks.

• Answer:

  Not a lawyer. If the investor has already bought the shares he has control and has to approve you diluting him. Which probably isn't going to happen.  If he hasn't bought the shares - given you the cash yet - then he probably has a reasonable expectation of control and doing what you are suggesting would either kill the deal or poison the relationship. I would go back and explain that you screwed up and renegotiate. (Obviously various ways of doing this without sounding too stupid) There is always more money out there if he walks away but it is far far better to resolve this quickly and cheaply now. Trust me in this. You need totally inside partners and investors. I had to kick a co-founder out and we'd made a 50/50 split. That sucked AND it caused so many secondary problems down the line that it was one of the principal causes of failure. Also - just with you and your co-founder  - there is a gear podcast by Noah Wasserman at the Stanford  Entrepreneurship corner (it's a podcast from Standford on iTunes to) that talks about equity split and co-founders. And by the sound of it you really need an entrepreneurship lawyer here - not a standard company secretary