Does a C-Corp Have to Pay Salary to Sole Owner Working Full-Time?

[Cyrix]

A person is the only owner, director, and officer of a startup c-corp in California.
He is working full-time on the business, and the profits are growing.
The owner doesn't want to take any money out of the company at the startup stage. Is it legal for the c-corp to retain all profits and not pay any salary or dividend to the owner for a few years?
So another way to ask this question is: is a sole owner of a startup subject to minimum wage requirements?

Thanks.

 

[davew128]

A person is the only owner, director, and officer of a startup c-corp in California.
He is working full-time on the business, and the profits are growing.
The owner doesn't want to take any money out of the company at the startup stage. Is it legal for the c-corp to retain all profits and not pay any salary or dividend to the owner for a few years?
So another way to ask this question is: is a sole owner of a startup subject to minimum wage requirements?

Thanks.

The "sole owner" also called shareholder, and also presumably an officer (did you do due diligence in forming and operating the corp?) is a statutory employee due to being an officer and should be drawing reasonable compensation. Any compensation is subject to labor laws.

 

[tranquility]

While I agree with davew128, the reason for the rule is usually different between an S and a C corp. In an S corp, the owner/worker likes to pay the smallest salary so the greatest amount flows through to him. In a C-corp, the person usually wants to pay the highest salary to avoid double taxation. If the corp is really holding and not distributing all the money, it makes other things more suspicious like if the corp is paying the personal expenses of the owner. Since the OP is an officer, the amount should be reported and a W-2 issued. As davew128 said, he is a statutory employee.

 

[LdiJ]

While I agree with davew128, the reason for the rule is usually different between an S and a C corp. In an S corp, the owner/worker likes to pay the smallest salary so the greatest amount flows through to him. In a C-corp, the person usually wants to pay the highest salary to avoid double taxation. If the corp is really holding and not distributing all the money, it makes other things more suspicious like if the corp is paying the personal expenses of the owner. Since the OP is an officer, the amount should be reported and a W-2 issued. As davew128 said, he is a statutory employee.

I will also add that while I totally "get" the concept of leaving as much money in the corporation as possible in the early years, to fund growth, once the year has passed the opportunity to avoid double taxation has also passed for those particular profits.