Legal Question in Business Law in California

Since most newly-started businesses don't and can't pay regular market-rate salaries to their founders, yes, you can do this. The taxing authorities (and probably the unemployment people as well) would begin to have reason to complain at some time in the future when (a) you are working rather steadily in the business, and (b) the business is producing enough revenue above its expenses so that it can well afford to pay you. I can't predict whether or when the unemployment folks would consider you employed in your business and capable of paying yourself a salary, but if you handle it in a reasonable and justifiable manner, you'll probably have an acceptable story if they ever question you (and the odds of this are not zero, but rather low).

In addition to Mr. Whipple's comments, in order to stay eligible for unemployment, you need to be able to declare under penalty of perjury on your claim forms that you are continuing to search for employment and that you are actually available for employment (including for interviews, sending applications/resumes, etc.). If you are working full-time in your own business, you would not be able to honestly answer those questions with a 'yes' and would therefore not continue to qualify for unemployment.

However, if you meet the qualifications above, it may also be possible to actually pay yourself while on unemployment, but you would need to deduct any amounts you receive from what you may be entitled to from unemployment. For example, if you earn $150 in one week from your business, but you are entitled to $450 from unemployment, you will subtract out $150 just as if you had worked a temporary or contract job, and can then receive the difference in unemployment funds. You need to account for the money earned when the work is done, not when you actually pay yourself.

This process gets tricky, and you will likely end up having to have a phone call with EDD so that they can ask questions about what you are doing and make sure you are still looking for work. Your benefits may be delayed, or EDD may end up cutting them off if they do not believe you are continuing to look for work; however, that is probably better than them finding out down the road, claiming that you committed unemployment fraud, and having to pay back the unemployment you received plus penalties.