I'm based in Hong Kong. I've read through a lot of information about share vesting for co-founders and realized that is definitely the solution I want. I'm now trying to figure out how to actually go about setting it up, but would rather not spend a lot of money on this.
Can all of this be done with a customized shareholder agreement in the LLC docs, or do I need to speak to a lawyer? (Would rather not speak to a lawyer because that will eat into most of our budget.)
If there are 4 co-founders each with share vesting schemes to eventually own 25% of the firm each, doesn't that mean that at the start we own 0% of the firm? Who owns the other 100%?
Or does one person in the company still need to hold at least 51% of shares and the other 49% reserved for vesting with the other co-founders?
Before getting into some of the details, I'll give you the bad news first: You can't do this (properly) by yourself. It would be difficult for any entrepreneur, but based on your confusion of terms ("share' and "shareholder" refer to corporations rather than LLCs), it is evident that you are new to these issues.
In the following discussion I will assume that a corporation is involved. (If you want to do something similar with an LLC, the appropriate terms - in the U.S., at least - typically are "member" and "percentage membership interest" or "units", depending on how the LLC's operating agreement is written.)
Each founder typically signs a restricted stock agreement under which he is granted - and immediately owns - shares. Over time, the portion of shares that is subject to forfeiture is reduced - e.g., 25% per year for four years. Because this amount is a decreasing percentage, rather than the increasing percentage associated with stock options, the process often is referred to as "reverse vesting" (in contract to option "vesting"). For additional information, please see "Rewarding Key Personnel: Restricted Stock or Options?" Part of your confusion arises from not knowing the difference between authorized shares and issued shares. Please see "How Many Shares Should My Corporation Authorize and Issue?" Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.
Check out this post by Brad Feld. I actually read it earlier today. If it's an informal company you can probably write or template the vesting agreement yourselves.
In regards to the second question, if you have four founders who each own 25% of the company but are vested at 0%, and one of them leaves, now each employee owns 33% of the company (still vested at 0).
Just because you haven't vested it yet doesn't mean you don't own it, you just haven't earned it yet.
If you go through a full blown VC agreement I believe you can structure this more specifically (i.e. if a founder leaves, the other founder gets their forfitted shares instead of it going equally among the owners (i.e. "reverse dilution").