Topic: Share dilution approaches, An self-incorporation non-financed growth approach. (Read 241 times)

This subject is close to home right now and very important to solve an approach.

This is a common stock s corp approach with 2 founders out of pocket incorporating in DE.
The founders of this company are trying to balance the desire to accept outside investment with the desire to maintain control over the company.
The founders want the options of accepting investors however dont want them at first unless they can help found with sweat equity as infrastructure is service based, tested, working.
Injections can propagate long-term holding goals, however it is preferred these are organically obtained due to workload concerns of the scaling method
At first glance this philosophy sounds so dumb, but considering a very low assumed PAR evaluation labor cost would eat up any (small) investment unless the PAR value is passed on NON IPed property.
So, imagine a out of pocket startup if you will worth $0.00 getting externally funded $1,000,000 the $1,000,000 could instantly go towards a long-term goal such as real-estate Aqisitions
But you practically work for said investor, not the corporation as they've contributed most physical value and likely own a pretty good chunk of shares if you were evaluated low.
However, this can help a lot with insolvency concerns in the first 3 to 5 years as a revenue driver.
Also if the company gets $1,000,000 in funding in this scenario the potential for misallocation is higher if the corporation hasn't grown into this type of capitol.
The founders want a way to consider outside Invesment opportunities responsibly, not just accept capitol and hope for the best on a contingency plan drafted up in a quarter.
It's not that the founders are irresponsible, an over injection could potentially skip necessary scaling plans needed to sustain with the corporation being ran by 2 individuals at first out of pocket.
so an injection would be used to lay the path to sustain the measure and diluted into infrastructure rather than intended purpose.
for example hiring brokers and deploying necessary infrastructure might cost  
a LOT more than organically growing into it with potential of the investment going stagnant if pushed to quick.
a $1,000,000 injection in the beginning (Forced Infrastructure deployment cost +2 properties)
won't go as far as a $1,000,000 injected at year 5.  (Existing organically grown company infrastructure + 5 properties)
However a $1,000,000 injection with founding direction via sweat equity is a win-win for all involved, but a much harder pitch essentially asking someone to contribute time and money & have the company self-sustaining.

Is share dilution the answer to this?
The way its structured at the moment is 500,000 outstanding shares remain with founders and investors as new shares are issued in the corporation's name every quarter increasing 2.5% a quarter.
The idea is involvement structure in establishing and the ability to let it self-sustain in 5 years, allowing founders to step off a little bit after 5 years.
Anything over 2.5% profit each quarter ran concurrently basically dilutes the effects of dilution, right?  
The corporation is services based with existing infrastructure with a couple year's long bootstrap and non-IPed portfolio.
Aggressively bootstrapped in the last 4 months with technical writings nearing completion.
All services have deployment plans, terms pricing structures, and inhouse tools to apply organic marketing and success as well as long term
holdings goals.

Year 1:
Quarter 1: 97.5% ownership by shareholders, 2.5% ownership by the company (25,000 shares issued for and by the company)
Quarter 2: 95% ownership by shareholders, 5% ownership by the company (50,000 shares issued for and by the company)
Quarter 3: 92.5% ownership by shareholders, 7.5% ownership by the company (75,000 shares issued for and by the company)
Quarter 4: 90% ownership by shareholders, 10% ownership by the company (100,000 shares issued for and by the company)

Year 2:
Quarter 1: 87.5% ownership by shareholders, 12.5% ownership by the company (125,000 shares issued for and by the company)
Quarter 2: 85% ownership by shareholders, 15% ownership by the company (150,000 shares issued for and by the company)
Quarter 3: 82.5% ownership by shareholders, 17.5% ownership by the company (175,000 shares issued for and by the company)
Quarter 4: 80% ownership by shareholders, 20% ownership by the company (200,000 shares issued for and by the company)

Year 3:
Quarter 1: 77.5% ownership by shareholders, 22.5% ownership by the company (225,000 shares issued for and by the company)
Quarter 2: 75% ownership by shareholders, 25% ownership by the company (250,000 shares issued for and by the company)
Quarter 3: 72.5% ownership by shareholders, 27.5% ownership by the company (275,000 shares issued for and by the company)
Quarter 4: 70% ownership by shareholders, 30% ownership by the company (300,000 shares issued for and by the company)

Year 4:
Quarter 1: 67.5% ownership by shareholders, 32.5% ownership by the company (325,000 shares issued for and by the company)
Quarter 2: 65% ownership by shareholders, 35% ownership by the company (350,000 shares issued for and by the company)
Quarter 3: 62.5% ownership by shareholders, 37.5% ownership by the company (375,000 shares issued for and by the company)
Quarter 4: 60% ownership by shareholders, 40% ownership by the company (400,000 shares issued for and by the company)

Year 5:
Quarter 1: 57.5% ownership by shareholders, 42.5% ownership by the company (425,000 shares issued for and by the company)
Quarter 2: 55% ownership by shareholders, 45% ownership by the company (450,000 shares issued for and by the company)
Quarter 3: 52.5% ownership by shareholders, 47.5% ownership by the company (475,000 shares issued for and by the company)
Quarter 4: 50% ownership by shareholders, 50% ownership by the company (500,000 shares issued for and by the company)

Trying to figure this out has turned my thought processing into mashed potatoes.
There is no 1 size fits all solution. There is no template. I don't know a single soul that knows what the fuck I'm talking about on this stuff.
long story short what's the best way for 2 founders to incorporate without an existing LLC or business or the want for external investment but plans to make the corp self-sustain in 5 years?
The idea is to form with the end in mind, franchising services as soon as possible based on a scaling structure that initiates upon overbooking the 2 founder's workloads.
(for example overbooking consistently, invokes a new hire or a new contract can invoke new hires)
 
Is one way to do this is through the use of a vesting schedule for the shares issued to investors?
Meaning that the investors would receive their shares over a period of time, rather than all at once?
Doesn't the dilution method pitched above have the same end result?

Another possible option to consider is the use of a convertible debt structure,
where the investors provide funding to the company in the form of a loan that can be converted into equity at a later date.
This can provide the company with the funding it needs while giving the founders more control over the terms of the investment and the dilution of their ownership.

If any of you guys are into corporate law or corporate finance deployment structure consultation, please reach out or speculate here.
We have a general layout of the land, an LLC would be a simple approach/solution with out-of-pocket approach but doesn't align with the long-term goals.