Earlier quoted context omitted.
Oh but they can. If you start a company with two other founders and agree to a 1/3 split each, or 33,000 shares. After a month you get bored and decide to let them make it a success, quit the company and tell them to wire you your third when they finally succeed. In that case they can issue 1 million new shares immediately to themselves, and with very little tax consequence. It's a one month old startup, worth close…
True. In that regard it's also fair.
If it's fair, you're in the clear. The diluted partner might be unhappy, and could even sue (but would hopefully lose), but at least objective observers with good information about what went down would be ok with it.
If it's not fair, you open yourself up to lawsuits you may be unable to win, and your reputation as a fair dealer gets damaged, perhaps permanently, and people will think twice about working with you in the future.