Are co-founders employees? Do they need to be paid minimum wage?


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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.

Employees Founders

asked Jul 19 '11 at 12:21
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Anil
45 points

3 Answers


2

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.

answered Jul 20 '11 at 13:11
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Dave Feyereisen
963 points

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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.

answered Jul 20 '11 at 10:50
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Michael Merchant
167 points

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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.

answered May 26 '12 at 10:31
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Dana Shultz
6,015 points
  • "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? – Ryan Wilcox 8 years ago
  • I'm sorry, I misquoted you. "If they choose not to be employees, they need not receive wage" – Ryan Wilcox 8 years ago

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