Title dilemma, should I give the "Co-Founder" title when he's technically not a co-founder?

I'm in a bit of a dilemma. First off, we're not technically a startup but have been around for a few years. We're a small software company, 7 people including myself.

I started the company by myself, without funding and without a co-founder. The individual I'm talking about however, I will call him Michael, has been with me the longest however (6+ years), and been an integrative part of the business. When I hired him, he came right out of school and didn't know much about web development, but he learned quickly and is now helping with many parts of the business. In essence, he's almost like a partner at this point.

Michael recently expressed that he'd like some official recognition, in particular to distinguish himself from the other employees, most of which are, well, just employees. His request is more than justified, but I'm having a hard time finding a title. The fact that I could care less about titles and such doesn't help either :-).

The problem however is that we are officially an S-Corp, so I can't call him a partner. He's not running day-to-day operations (e.g. bookkeeping, employee management), so I anything like VP of operations doesn't work either. He's also not managing any employees, though having a title would make it easier to assign such tasks to him.

He recently asked whether it would be too much to call him a "Co-Founder", and I honestly don't have an answer and was hoping for some constructive feedback. He arrived at the business about 2 years into it, and was pretty effective a year after that. The company has been around for about 8 years now. So he was the first full-time employee, and is very important to the business.

Some have suggested VP of software development, but that technically won't work either since he's "only" proficient with web languages (java, RoR, php, CSS, etc.), yet we also do a lot of C++ stuff (that would be the majority of our coding).

Would Co-Founder be appropriate in this case, or is there another title that would make sense?

Absolutely not cofounder. That title implies that he holds a major ownership stake; and would confuse any potential future investors, bankers, advisors etc.

I also wouldn't go with "VP of ...". Personally, I find these titles way too grandiose for a company with seven people -- "Vice President of Development" in a seven-man company, come on...

Something else to consider: As I understand you, he specifically asked for co-founder. Maybe that is not just a request for a nicer title than his colleagues. Could it be that he wants more than just recognition; could he (perhaps subconsciously) long for actual partner status?

About titles: If you want to keep him as just an employee, then I would suggest "Lead developer" or "Team Lead".

You could also consider "Architect"; but not that implies some decison authority over technology choices, i.e. which languages to use, which coding standard to follow, etc. This is often emotionally charged for the other developers; especially the C++ guys.

CTO is another possibility. It's also quite grandiose for a seven-man company, but it's more common in small technology companies than Vice President is. CTO implies a major say in overall company strategy, such as providing input to marketing & product strategies.

Lastly: If he's important for your company, and has played a major role over the life of your company, maybe you should offer him some equity or profit sharing? Be very careful and think about it before introducing this topic; it has the potential to cause lots of negativity. On the other hand, if he secretly feels like a cofounder but isn't getting that recognition, then his feelings about the company are likely to only grow worse until this topic is brought out into the open.

It sounds like his area of expertise is web development. How about Director of Web Development? Do you have other employees working on web development? And does Michael have any input into their tasks and/or decisions?

Edit: As @Jesper points out, these things are sometimes about more than just a title. Do you provide your employees with business cards? If you don't, I would suggest that in addition to the new title, you also provide Michael with business cards. Business cards are very inexpensive, but it's yet another way to distinguish him from the other employees. If you already provide business cards to all your employees, at the very least get him new business cards with his new title.

I don't think he fits the description of co-founder.

VP of Software Development would be fine. Titles don't follow any sort of ISO standard, he could be the receptionist and still be titled "VP of Software" if you wanted :)

You could also give him something a little more vague but important sounding like "Chief Architect", "Director of Applications", etc.

I suggest: Software Development Director or Vicepresident.