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Lead Developer sounds appropriate. Here is an interesting post about this very topic. This way, you can either grow into the CTO position or into Sr. Developer, depending on your aspirations. If you read the CTO job requirements, you'll find that many competent developers don't want to follow that path (can't blame them).

Absolutely not cofounder. That title implies that he holds a major ownership stake; and would confuse any potential future investors, bankers, advisors etc. I also wouldn't go with "VP of ...". Personally, I find these titles way too grandiose for a company with seven people -- "Vice President of Development" in a seven-man company, come on... Something ...

Titles get in the way of whats important. Down the road they can cause undesirable and unnecessary problems. Imagine your friend is your Marketing Manager today. Maybe your company grows and you find the funds to hire someone even better. Are you going to hire a VP of Marketing? How is your Marketing Manager/cofounder friend going to feel about that. How ...

You generally shouldn't use the word Director in a UK job title, unless they are. Nothing to stop you, and no need to register them with Companies House, but ... It should be noted that only actual directors appointed by the Company and registered as such at Companies House should be called directors. To give a job title to an employee such as ...

It sounds like his area of expertise is web development. How about Director of Web Development? Do you have other employees working on web development? And does Michael have any input into their tasks and/or decisions? Edit: As @Jesper points out, these things are sometimes about more than just a title. Do you provide your employees with business cards? If ...

Titles can be important if you have to communicate with other companies. Would it be easier for you to get an appointment (or talk to a bank about a loan) if you were called "President" (US) or "Managing Director" (UK), or if you were called "Applied Philosopher"? Could you make a sales call as "Senior Developer", or would it be easier to get an ...

There is no golden rule saying that you have to have a title on a business card, but what is stopping people from asking you what your role is at the company? Not having a title on your card is one thing (and is fine as JonnyBoats points out), but what happens when you're asked of your role, what do you introduce yourself as? I would definitely role with ...

Personally I would use a card with no title on it. This is done far more than you would think by people at the highest levels. The key is to have an extremely high quality and simple card, you will be immediately perceived as important. If asked what your role is or why you are at the meeting you can simply state that you are there to facilitate a deal. ...

How about "co-founder". That is the most neutral. Why do you need a title? There is not value in a title except if you want to change job, which I guess you are not. I was co-founder and CTO of a business and had that on my card, and honestly I always felt it was ridiculous. The last one I just put co-founder. Honestly it doesn't matter, it is not going to ...

The VP of R&D is responsible for taking ideas and making products. The CTO's job is to lay out the technology strategy so that the VP of R&D can develop plans to realize the vision. They can sometimes be the same position but that's rare. Usually, a startup will either have a VP of Engineering (R&D) or CTO -- having both can be overkill but ...

I don't think he fits the description of co-founder. VP of Software Development would be fine. Titles don't follow any sort of ISO standard, he could be the receptionist and still be titled "VP of Software" if you wanted :) You could also give him something a little more vague but important sounding like "Chief Architect", "Director of Applications", etc. ...