I am a co-founder of an early stage internet startup company that has
a question about equity distribution.  Basically, we are starting a
business that has to do with online social networking.  The company
was founded by a buddy of mine in August of 2005-he came up with the
idea, wrote the business plan, acquired the domain and filed for the
patents.  All this took around $150,000 to do which he did with partly
his own money and partly through a friends investment.  This April, I
decided to join his company as a co-founder along with another buddy
of mine at the same time.  Currently we have three employees(the
founder along with the two co-founders).    The co-founders will be in
charge of marketing this company(this type of company will require a
heavy marketing campaign).   We have been frantically trying to raise
the capital to get this project started.  Originally, we were dealing
with an angel investment group that gave us a $5 million valuation for
our company in June of this year.  This particular angel investment
group bailed on us in July saying that the financing fell through on
their side.  At this point, we decided to take the financing in our
hands and raise the money we needed to get our prototype done(roughly
$900,000) through the sales of common stock that the founder owned. 
The co-founders each put in $40,000 of our own money and have been
contacting friends, family and contacts we know to raise the money. 
So far, we have raised about $450,000(at a valuation of $5 million)
between the three of us(roughly $150,000 each) and have some important
leads that should help us get enough money to get the prototype done.

We are trying to figure what a fair equity distribution would be for
us at this point.  Currently, the founder owns 90% of the
company-roughly 9% has been sold to investors.  We are trying to
figure out what the co-founders should be given -and what is fair at
this point.

Also, how should we be given equity-should it be a certain # of
shares(we currently have 1000 shares outstanding at $500/shares) or
should it be as a percentage of the company in the charter?  What are
the tax implications if we are given equity at this point?

Down the road, what kind of dilution should we expect if we have vc's
investing in us?  we expect to look for vc money after our prototype
is complete.