How does equity work in a new company?

[bobman0330]

For tax reasons and for fairness, you would usually set up the company so that, e.g., the money guy gets preferred stock worth $75 and pays $25 for 20 shares of common. The other two pay $50 each for 40 shares. If that was the structure, Scenario 1 gives all the money to MP, Scenario 2 returns what they put in, and Scenario 3 gives 140 to MP and 130 to the others. (Unless the shares have vesting requirements, which would also be common.)