Can a co-founder work for equity only, without a salary?
By SuLe · Updated 15 June 2026
Yes, if they are a genuine founder-director or shareholder with no employment or worker contract — such a person is outside National Minimum Wage rules and can work for equity alone. The trap is where the co-founder is really an employee or worker, because then the minimum wage must be paid in money, and equity cannot count towards it.
Key facts
- A genuine founder-director or shareholder without an employment or worker contract is outside National Minimum Wage rules.
- Anyone working under an employment or worker contract must receive at least the National Minimum Wage in money.
- Equity cannot count towards the minimum wage — shares are not money.
- Getting the status wrong can leave the company owing wage arrears, plus tax and National Insurance consequences.
- Whatever the pay arrangement, equity should still be vested and documented.
Can a co-founder really work for equity only?
In many early startups, yes. Founders routinely go unpaid while the company has no revenue, taking their reward as equity and worrying about salary once there is cash to pay one.
That works cleanly where the co-founder is a genuine founder-director or shareholder — someone who holds office and owns shares, without an employment or worker contract sitting underneath. People in that position are not caught by minimum wage law.
The problem is that founders often assume this status applies without checking. Whether it does depends on the real nature of the relationship, not on the label on the document.
When does the minimum wage rule bite?
It bites whenever the co-founder is, in substance, an employee or a worker. National Minimum Wage law requires those individuals to be paid at least the statutory rate, in money, for the hours they work.
Equity does not help here. Shares are not money, so they cannot be counted towards the minimum wage — a worker "paid" only in equity is underpaid as a matter of law, no matter how much the shares might eventually be worth.
The distinction turns on the true relationship: control, obligation to do the work personally, and how integrated the person is into the business. A written "consultancy" or "founder" label does not override the reality if the reality is employment.
| Genuine founder-director / shareholder | Employee or worker | |
|---|---|---|
| Employment or worker contract? | No | Yes |
| Minimum wage applies? | No | Yes — payable in money |
| Can equity replace pay? | Yes, if truly outside worker status | No — equity cannot count towards minimum wage |
| Main risk of getting it wrong | Being reclassified as a worker | Wage arrears, tax and NI exposure |
What is the difference between a founder-director and an employee?
A founder-director holds a company office and usually owns shares, and can act in that capacity without any employment contract. An employee works under a contract of employment in return for a wage — and the same person can wear both hats at once.
The two statuses are separate, which is what makes this area slippery. A co-founder can be a director and shareholder and also, through how they actually work, a worker or employee for minimum wage purposes.
If there is a genuine employment or worker relationship, the minimum wage rules apply to that relationship regardless of the equity. The equity sits on top; it does not switch off employment law underneath.
What are the practical risks of no salary?
The legal risk is reclassification. If HMRC or a tribunal later treats an unpaid co-founder as a worker, the company can owe minimum wage arrears for the whole period, with tax and National Insurance consequences following.
There is a human risk too. Unpaid founders sometimes lose momentum or drift towards paid work elsewhere, leaving the company carrying their equity for contribution it never received — the exact scenario vesting exists to guard against.
Deferring salary is a middle path some founders use: the salary is agreed and accrues but is not paid until the company can afford it. That is different from waiving pay entirely, and it should be documented as a deliberate choice.
How should you document an equity-only arrangement?
Put the equity, vesting and role in a founders' or shareholders' agreement, and be honest about legal status. Trying to dress up an employment relationship as a founder arrangement to dodge the minimum wage does not work and creates liability.
Under the Companies Act 2006, directorship and shareholding are recorded through your registers and Companies House filings; the running-a-limited-company obligations sit alongside. If any pay is deferred rather than waived, record the amount and the trigger for paying it.
Because the line between founder and worker is fact-sensitive, take advice before relying on an equity-only structure — the cost of getting it checked is far less than back-paying wages later.
Worked example
Hassan and Leyla start an edtech company. Hassan keeps a part-time job and works evenings; Leyla goes full-time. Both are directors and shareholders, and neither takes a salary at first.
Leyla is treated as a genuine founder-director without an employment contract, so minimum wage rules do not apply to her unpaid work. But the company later hires a full-time developer, Tomas, on an equity-only "founding" arrangement with fixed hours, close direction and no independence.
Because Tomas is really a worker, equity cannot satisfy the minimum wage, and the company should be paying him at least the statutory rate in money. Realising this early, they put Tomas on a proper paid contract and keep his options separate — avoiding a wage-arrears bill down the line.
Where founders go wrong
Assuming any co-founder is automatically outside the minimum wage.
Status depends on the real relationship. A co-founder who works like an employee may be a worker in law.Treating equity as a substitute for wages for staff.
Equity cannot count towards the minimum wage for employees or workers. It must be paid in money.Labelling to avoid the rules.
Calling someone a "founder" or "consultant" does not override the reality of how they work.Skipping vesting because there's no salary.
Unpaid founders can still walk away with their shares. Vesting matters just as much when nobody is being paid.
Related questions
Can a co-founder legally take no salary?
Often yes — a genuine founder-director or shareholder with no employment or worker contract is outside National Minimum Wage rules and can work for equity alone. The danger is where the co-founder is really an employee or worker, because then the minimum wage must be paid in money. [More: Can I pay someone in equity instead of salary?]
Why can't equity count towards the minimum wage?
Because National Minimum Wage law requires payment in money for anyone working under an employment or worker contract. Shares are not money and cannot be counted, so a worker paid only in equity is underpaid by law — however valuable the equity might one day be.
What is the difference between a founder-director and an employee?
A founder-director holds office and usually owns shares, without necessarily having an employment contract. An employee works under a contract of employment for a wage. The same person can be both, and if there is an employment or worker relationship, minimum wage rules apply regardless of the equity. [More: Employee vs contractor — what's the legal difference (and where does IR35 fit)?]
What are the risks of paying a co-founder in equity only?
If the co-founder is found to be a worker or employee, the company can owe minimum wage arrears, and there may be tax and National Insurance consequences. There is also a commitment risk: unpaid founders sometimes drift, which is exactly why vesting matters. [More: What is founder vesting and how does it work in the UK?]
How should equity-only arrangements be documented?
Set out the equity, vesting and role in a founders' or shareholders' agreement, and be clear and honest about the legal status — founder-director versus employee or worker. If any salary is deferred rather than waived, record that too. Take advice before relying on an equity-only structure. [More: What is a founders' agreement and do we need one?]
Equity-only sounds free until a co-founder is reclassified as a worker and the company owes back-dated minimum wage — a bill that lands exactly when cash is tightest. A SuLe solicitor can check each founder's real status, structure the equity and vesting, and keep you clear of the minimum-wage trap. Get your founder documents reviewed — book a free consultation and set the arrangement up safely.
Keep reading: Can I pay someone in equity instead of salary? · How should co-founders split equity in a UK startup? · What is founder vesting and how does it work in the UK? · How much equity should a startup CTO get? · What is a founders' agreement and do we need one? · Employee vs contractor — what's the legal difference (and where does IR35 fit)?
Primary sources: Companies Act 2006 · GOV.UK — Running a limited company
