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If there is a co-founder with 20% equity in the company but no salary, what is his status in the company? Should he be considered an employee? What is the difference between a cofounder and an employee per law?

If I incorporate my bootstrapped startup, should I worry about minimum wage and benefits etc for co-founders?

UPDATE we are located in the US.

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Minimum wage? What's that? I dream of minimum wage. :) – Joseph Barisonzi Jul 19 '11 at 3:49
The term 'minimum wage' suggests you might be in Europe - pls can you give more info on your location as this obviously affects the answer. – Steve Wilkinson Jul 19 '11 at 10:35
Minimum wage also applies in the US, both at the federal and state level, it's not a European thing. See dol.gov/whd/minwage/america.htm – Alain Raynaud Jul 19 '11 at 13:20

3 Answers

up vote 2 down vote

I strongly suggest you spend $100 to $200 with a good small business accountant to help you get your business set up. It will save you thousands in the long run, and it will let you spend your time building the business instead of learning how to be an accountant.

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I'm not an accountant or a lawyer; however, from my understanding of US law, a cofounder is considered a shareholder in the company. The company's responsibility to them would fall under shareholder's rights, which could include how their equity/shares and any dividends provided to them are dispersed.

As owners, they may or may not also be employees. If they're not listed on your payroll for your payroll taxes filed to the IRS then they are probably not considered employees by US law.

I'd recommend you reading more on the difference between shareholders and employees and possibly consulting the attorney that has drawn up your rights to the shares of the company.

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up vote 0 down vote

Founders can be, but need not be, employees of the business. If they choose not to be employees (as typically is the case for a startup that has no revenue), they need not receive minimum (or any) wage.

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.

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"If they choose not to be employees, they need to receive wage" - can you point me to the section of the US Labor Laws (and/or say state of CA department of labor) that says that? – RyanWilcox May 26 '12 at 2:34
I'm sorry, I misquoted you. "If they choose not to be employees, they need not receive wage" – RyanWilcox May 26 '12 at 2:41

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