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LawTalk, Attorney
Category: California Employment Law
Satisfied Customers: 34882
Experience:  I have 30 years of experience in the practice of law, including employment law and discrimination law.
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Three people formed a C-Corp in California in 2012 to start

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Three people formed a C-Corp in California in 2012 to start and run an internet sales business. Person A and B were investors and corporate officers. They did not receive a salary. Person C, the CEO, was a corporate officer who received a salary not for his work as a corporate officer, but because he ran the business as his full-time employment. His salary and deductions were paid through the use of a payroll company. In 2013, 14 months after starting the company, the officers decided the business model was not going to be profitable and are considering dissolving the company. Person C is now looking for full-time work, is no longer receiving a salary, and is performing no duties for the corporation. Is he entitled to unemployment benefits? If he is not would dissolving the corporation, or purchasing his third of the corporation make a difference. The company never made a profit and has a small amount of debt.

Good afternoon Joe,

I'm Doug, and I'm very sorry to hear of your situation. My goal is to provide you with excellent service today.

Under CA law, a determination must be made by EDD as to whether the CEO/employee of the C-corp actually had the ability to control whether he gets paid or not.

The court has determined that the following factors must be established to be eligible:

  • Whether the individual is unemployed through no fault of his or her own.
  • Whether the individual can control his or her own unemployment or whether the nature of the work is seasonal or erratic.
  • Whether the bylaws of the corporation provide for compensation to the individual for his or her services as an officer of the corporation.
  • Whether the individual has performed services for the corporation in any capacity other than as an officer of the corporation.
  • Whether the individual is seeking work either as an individual or for the corporation and whether the individual is available to a substantial field of employment.

In effect the main thrust of the determination will be to see whether the CEO's state of unemployment was a matter over which he had no control and one which was not a result of any deliberate decision to tailor the terms of his employment, and particularly his compensation, in such a way as to avail himself of unemployment compensation benefits to which he should not have been entitled. If he didn't have the control, then he will qualify.


Unless the CEO has the ability to choose to continue, and not to dissolve the company, and presuming that the payroll company paid unemployment taxes on the CEO as required by law, then so long as the CEO is not presently employed, and is seeking full time employment, then he should qualify for benefits under CA law.

You may reply back to me using the Continue the Conversation or Reply to Expert link and I will be happy to continue to assist you until I am able to address your concerns, to your satisfaction.

Please remember to rate my service to you when our communication is completed.

I wish you the best in 2013,


LawTalk and other California Employment Law Specialists are ready to help you
Customer: replied 3 years ago.
Thanks, Doug. I appreciate your prompt response. Can we keep the corporation active, while we decide if we can make some adjustments? This may take six months, etc. We have no funds to pay C a salary. We may never rehire him if he finds full-time employment. The business just wants to make sure he receives what he is entitled to.

Good afternoon Joe,

As he, like all of you, is unpaid as an officer, there would seemingly be no reason that the corporation can not remain in existence, even if it is not making enough money to pay his employee salary.

Presuming that A and B have the ability to terminate C as an employee, that should be done because of lack of funds. That will go far in showing his entitlement to unemployment benefits.

Thank you for your kind words. They are appreciated. Please keep in mind that until you rate me highly for my service, I will not be credited with helping you.

Thanks again.

Have a great day,

Customer: replied 3 years ago.

Thanks again, Doug. You answered my questions and I appreciate your help. Just gave you an excellent rating.
Thank you for your positive rating of my service, Joe. It has been my pleasure to assist you and I hope than you will ask for me on JustAnswer should a future need ever arise.

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Thanks again.


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