Firstly, are you sure you describe the situation objectively? If this were a novel, I would consider the storyline under-developed. There must be some reason, however injust, why your co-founder thinks he should get a majority share. For example:
"currently, 100% of the design AND code was created by me."
You may have done the typing, but you also acknowledge that there was a lot of discussion that led to the current design. I guess that this is an area where your co-founder may see things very differently ('(s)he did the technical stuff, but all the ideas are mine')
As to your question, you should decide what you value more: getting back on your co-founder, or having the product succeed. In the first case, go talk to a lawyer; in the second, I think you should get an agreement that includes you leaving the company ASAP. That ASAP is because of phrases such as 'bullied', 'bosses me around', 'belittling' that make me wonder about the 'is' in 'who is a close friend.'
How much you can get out of it depends on the value you have to the company. That will depend on the technical complexity of the product.
You don't have to sign a contract for a counterparty to claim that a contract exists; worse still, your partner can claim, even the absence of a paper contract, that there are fiduciary duties you owe to each other. It helps you that you've never received consideration from your partner, but I doubt it helps so much that he can't take you to court out of spite.
This comment makes no sense. I'm an employer. I assure you, you do not need to offer health benefits, pay unemployment insurance, or even pay on a regular schedule for someone to be classified your "employee"; having seen unemployment insurance SNAFUs firsthand, let me assure you that "jail" doesn't enter the picture here at all --- they simply send you a bill.
I think tptacek is correct concerning the legal issues here. In any case, I didn't say the "friend" would prevail in his claim that the OP was an employee of his LLC, nor that he wouldn't suffer unintended consequences as a result of making the claim.
I'm sure that if you refuse to pay when the state government escalates from reminder notice to nastygram to series of phone calls all the way to "takes you to court", and you do something that indicates to a judge that you were overtly trying to shirk paying, then yes, you could go to jail.
The point is that it's not relevant to the situation at hand, because 10 months before that could ever happen, the "employer" is going to get a notice saying they owe some trivial amount of money, and they're simply going to pay it to go away. You would have to be made of stupid to end up in jail over employment taxes.
Note that you're replying both to a lawyer (in dc's case) and to someone who's dealt with this exact situation (in my case); you may want bigger guns here than a pay-per-word Demand Media article.
If you are an employer employing employees, you have to pay your share of Federal and State taxes on their behalf, including FICA and unemployment insurance. Failure to do so will result in penalties that may include jail time. (http://answers.google.com/answers/threadview/id/775884.html). Back to the issue, if the "friend" insists that the op was an employee, he would have been liable for said taxes. Thus he would be incriminating himself. You don't have to be a lawyer to figure that out.
"currently, 100% of the design AND code was created by me."
You may have done the typing, but you also acknowledge that there was a lot of discussion that led to the current design. I guess that this is an area where your co-founder may see things very differently ('(s)he did the technical stuff, but all the ideas are mine')
As to your question, you should decide what you value more: getting back on your co-founder, or having the product succeed. In the first case, go talk to a lawyer; in the second, I think you should get an agreement that includes you leaving the company ASAP. That ASAP is because of phrases such as 'bullied', 'bosses me around', 'belittling' that make me wonder about the 'is' in 'who is a close friend.'
How much you can get out of it depends on the value you have to the company. That will depend on the technical complexity of the product.