[tjpd]

You really need professional employment counsel to respond to this properly & IANAL but here goes...

"Not paying Founders is illegal, is it?" Most likely, yes.

"Which exact part of any law demands paying active Founders?" There is no "exact part of a law" that demands it. You don't just look it up. That's not how the law works. There is a whole host of federal and state minimum wage legislation as well as precedent case law that would come into play. You cannot point to an "exact part" that requires "active Founders" (a term that the law doesn't recognise) to be paid minimum wage. Dig through [1], [2] and do a precedent search on LexisNexis or Findlaw if you're really interested.

Look, paying minimum wage is a legal requirement in the US. There is a small set of exemptions that allow companies to pay below minimum wage. The executive exemption [3] is one such exemption. These exemptions usually come with tests that you have to satisfy in order to qualify for the exemption. For example, according to the DOL [3] there are 4 tests, ALL of which must be satisfied to qualify for the executive exemption:

1) salary based comp > $455/week 2) primary duty is management 3) directing work of >2 FTEs 4) hiring/firing authority

An "active founder" in your situation who is not responsible >2 FTE would fail this test & therefore fail this exemption. There are probably other exemptions you could look to use instead. Your founders might or might not qualify for those as well, depending on your exact situation. Not paying her/him might or might not therefore be illegal.

The main problem is that you're completely missing the point.

Firstly Carolynn's advice is largely talking to startups that are YC-funded (& beyond). Secondly her advice is a reflection of the consequences & the risks involved, not some legal sub-clause. Do you want to risk falling foul of state & federal minimum wage law? Do you want to fall foul of payroll taxes? The answer is no. You do not. In the event you and your founder fall out (as Carolynn goes on to discuss) your life will be so much worse. Delinquent employers, minimum wage abusers do not fare well in a judge & jury court let alone the court of public opinion.

This is a complete non-topic. You are focused on a technicality & some overblown/imagined idealogical conflict, when instead you should just take Carolynn's very good advice and pay yourselves minimum wage if you can.

[1]: http://en.wikipedia.org/wiki/Minimum_wage_in_the_United_Stat... [2]: http://www.dol.gov/dol/aboutdol/history/flsa1938.htm [3]: http://www.dol.gov/whd/regs/compliance/fairpay/fs17b_executi...

Again IANAL.

[himax]

Thanks for your reply.

"The main problem is that you're completely missing the point." Sorry, can you be a little less confrontational?

"This is a complete non-topic." "...pay yourselves minimum wage if you can." And if I can't pay myself and several more founders? Would that make it a "Yes, topic" ?

I don't trust just one person's proclamations, specially when it makes no sense and there is no explanation, just a directive.

What sense does it make for all Founders depositing into start-up their post tax saving just so that start-up pay them back those money minus second income tax, minus second FICA & Unemployment insurance deductions for next 6-12 month?

That doesn't make sense to me. Because that prevents almost all tech startups to legally exist.

Thanks again for your comment.

[tjpd]

It's always hard to convey tone of voice well online. Sorry.

"And if I can't pay myself and several more founders? Would that make it a "Yes, topic" ?"

No, it's still a non-topic. If you can't pay your founders minimum wage you still have the same two choices: do a start-up or don't do a start-up. If you chose to do a start-up, know that you are taking on the additional risk that you might be breaking minimum wage laws and/or one of your founders can take you to court over it.

"What sense does it make for all Founders depositing...?"

The sense of it, is that it removes the risk of you breaking minimum wage law. That's ignoring all the positive social good of all those things. As NeutronBoy mentions you're literally describing how business works.

"that prevents almost all tech startups to legally exist"

No, it doesn't. I think your confusions stems from misunderstanding how law works & how law is enforced. Law is not proactive & the law is not binary. Minimum wage law cannot prevent "a start-up to legally exist". As Kirsty & Carolynn point out several times in that video your startup is a separate legal entity, one that exists from the point of incorporation. Assuming you've incorporated your start-up exists. Minimum wage law can't make it un-exist. A law or statute can't prevent it from existing. The clearest evidence for this is that thousands of start-ups do exist & that >0 them probably haven't paid minimum wage.

[himax]

Yes, I described how "some" businesses do it, most of them fail by 5 year mark or earlier and most of them don't give equity to early employees and don't have founders that work for equity, those are "some".

In contrast, most high tech or newer generation of self educated founders start without any money till there is an MVP and if some money are needed they are almost never allocated for complying with minimum wage laws to pay to equity earning founder, because in most businesses there is a more pressing need to pay for unavoidable things without which business wouldn't exist at all.

I perfectly know how law works, you just didn't picked-up on an emphasis of "legally" that was kind of obvious, meaning was "exist in legal compliance" I could have phrased it more accurately and you got me there, but it was more of an emotional typing than a prepared essay.

[NeutronBoy]

> What sense does it make for all Founders depositing into start-up their post tax saving just so that start-up pay them back those money minus second income tax, minus second FICA & Unemployment insurance deductions for next 6-12 month?

You've just described how all business work.

1. Someone at the start puts in money

2. The business does work and pays it's employees

3. The person who put the money in at the start get's a share in the profits.

The fact that the people putting the money in, and the people doing the work are the same doesn't really matter.