The Founder Salary Decision: Entity Rules, Benchmarks, and Board Approval
Written by Aparna Devalla, CPA
Curated by Rubric Financial
Last updated
1 / 5
Entity Type Sets the Rules
- C-corp: everything is W-2 salary through a payroll provider (roughly $55/mo on Gusto for founder-only payroll). There is no distribution mechanism; draws and Venmo transfers get reclassified by the IRS with penalties.
- S-corp: the IRS requires reasonable compensation as W-2 salary before distributions. In practice most S-corp founders take 40-60% of total comp as salary, with the rest as distributions that avoid FICA/Medicare.
- Single-member LLC: owner's draws, not payroll, with income flowing through to Schedule C.
- Almost every VC requires a Delaware C-corp, so convert before your first priced round, and pay market comp in the conversion year.
Go deeper on this topic: 2026 Startup Founder Salary Report: What Seed to Series B CEOs Actually Pay Themselves→
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