Can I Start An LLC While Being Employed?
In your spare time, you have been thinking about starting a business using the vehicle of an LLC. You have some good ideas and concepts for a way to make some money. You have worked through all the different angles to make it happen. However, at this time you are not ready to make the leap and quit your day job.
You need the money and security of your regular job until the new business takes off and becomes successful. You are not sure how long that will be so you need to be certain the LLC business is going to be permanent enough for you to terminate your current paying employment. You also do not want to take action that would jeopardize your current job.
You then wonder whether there is some legal or another issue that would prevent you from keeping your job and running a business on the side. One important part of starting a new business is asking the right questions. This is one of them. Let us see if this article can allay your fears and give you some good advice.
This article will attempt to lay out all the consequences of you starting an LLC while still employed and thus avoid, if possible, any pitfalls that you might encounter along the way to your new business pursuit.
The answer to the question in the title is a “yes” with some qualifiers. They can be overcome with some good planning and proper execution by a person who desires to branch out with a new business.
This section addresses the issue of legal problems with government agencies. The answer is clear. There are none. When you apply to the appropriate state agency to register your LLC, no one will ask you if you have another job. There will not be a section on any form where you would list your employment status. You could be unemployed, working part-time, or have a full-time job. It will not matter, and you will not disclose any information.
The same applies when you apply to the IRS for a tax ID number for the LLC. You will have to supply some information but none of it will relate to your employment. Again when you go to the bank to open the LLC account the friendly people at your bank will not inquire about your job.
You can rest easy when it comes to starting your LLC. The same cannot be said about some other potential obstacles relating to your job.
There is no problem filing a tax return with your W-2 from your current job and a Schedule C form your LLC. That assumes your LLC is not treated as a corporation. If so, then it will file its own separate return.
As long as the return is properly prepared and all income and expenses are properly reported it will not matter that you have a job and a separate business.
Very few people have an actual employment contract. If you do, you need to read it carefully and determine what, if anything, it says about taking another job. It is hard to know what is in a contract but it is highly likely it will contain some language to the effect that you cannot take another job without the permission of your company. You do need to read the language carefully and probably more than once. It will be the product of your company being very careful to cover every situation. It also will have reviewed by legal counsel for your employer.
If you do not have an employment contract, you probably received and signed a list of rules for your employment. This would be considered a condition of your working, or in other words, your work policy. It could contain items such as sick leave, vacation, and coming to work on time. It also may have restrictions on a second job.
Again you need to find and read this document. If it mentions a second job, it is likely to have that wording about getting permission.
Restrictions that prohibit a second job have to be enforced in good faith. An employer would have to state a legitimate reason to deny you the right to start an LLC. We will discuss those potential reasons later on but in general, an employer cannot just deny your request without a valid concern. Of course, your idea of a valid concern and your employer’s idea may well differ.
What happens if you cannot find any restriction prohibiting you from starting an LLC? That is great but you still have to consider the issues of secrecy and conflict of interest. They will be both discussed and have to be dealt with no matter what the company policy is.
You might think that it would be a good idea to not tell anyone at work, especially your supervisor and boss, that you are starting a business on the side. The problem is keeping the secret. Sooner or later, someone at work will find out about your LLC business. They will then tell someone else at work and pretty soon it will get back to the bass.
You will be far better off addressing the problem at the beginning. That gives you the advantage of explaining what you are planning to do before the fact. Keeping a secret implies that is a reason you do not want your employer to know. Also, consider that your co-workers may become your customers at your LLC. They may also refer your business.
If your employer has some concerns, it may be a simple matter to adjust your plans for the LLC and solve the problem before it ever develops into a real roadblock to your plans.
There is no need to share your plans for an LLC business when you are still in the planning stages. The business may not happen. You might go in another direction. Wait at least until you have some concrete ideas, and you are fairly sure this is all going to work. No need to cause some problems at work for no reason.
It is up to you to decide about secrecy but consider the possibility of what will happen if the secret comes out.
CONFLICTS OF INTEREST
There are many conflicts involved in starting an LLC. One obvious problem is if the LLC in any way is a competitor with your current employment. If so, you can pretty well be assured that your boss will not approve your business venture. After all, you would be taking the talent and expertise you gained from your job and putting it to work in your LLC.
Avoid a business startup that in any way competes with your current employer. Once you have determined that there is no conflict, you need to make sure that you do not have some special knowledge or information gained from your employer that is considered confidential. You cannot take that work product and use it in your new LLC. There is most likely some restriction involving corporate secrets that were included in any work document you signed upon employment.
Those are two conflicts your employer could use to deny use permission. If you are not competing for business and not using any special or confidential information, then your current company should approve you working on the side with your new LLC. You may be required to sign a form stating that you will not work on your business on company time and you will not use company resources.
It is going to take considerable amounts of your time to start that new business with an LLC. You have to remember that all of that time will come from your precious time off. None of it will come from your full-time job.
It will not take long to figure out that between the LLC and your job you have no or little free time. All of your day and night will be consumed by work. It may well be worth it in the long haul but there will be times when it will seem overwhelming.
Do not fall for the temptation to work on your LLC during your regular job. That is a bad idea and one that could lead to considerable problems. You think you can expand the hours in a day by working at both jobs at the same time. That is not a good idea.
There are several ways you can get into trouble at your job. You receive a phone call about your LLC during the time you are working. You cannot make those calls. You need to make or receive any calls either during your break or lunchtime. Do not start conducting LLC business while being paid by your current job.
Just tell the person who answers the phone that you are not available during work hours to discuss your side business. Tell the caller to contact you after hours.
Do not answer your cell phone at work unless you know it is a personal call. Even then, keep in mind your company’s policy of taking personal calls during business hours. Let the messages and texts accumulate until you can respond on your own time.
If you have a website or email for your LLC, which you will, you should not even access them during your job work hours. You do not want someone walking by and seeing your LLC business email account up on your work computer.
The same rationale applies to the use of resources. Something as simple as making a few copies on the office copier for the LLC must be avoided. The simple answer is while you are working your job to forget about your LLC and what is going on with the business. AS soon as you are off work, you can concentrate totally on your new business.
FULL OR PART-TIME
It is highly unlikely you can work two full-time jobs at the same time. You might last for a week or two but eventually, it will be too much. If you are going to keep your current full-time job, then your LLC will be part-time. That means you will need someone to run it while you are working.
This is the reason some people have made the leap of faith by quitting their job and concentrating all their time, energy, and talents on the new business LLC. It may eventually come to this but there is no reason to not try to keep your current job as long as possible.
The next section will point out some benefits of keeping your job. It is not exhaustive but it will give you some good ideas.
This article has looked at all the problems. There can certainly be some benefits from starting an LLC while keeping your job. As mentioned, your co-workers could become customers or sources of referrals. People you interact with on your job will ask you about your LLC. You should not initiate conversations but you can certainly answer any questions.
Anyone wanting a long conversation can be told to contact you when you are not working. The possibilities are endless. You might find that keeping your job was the best thing to happen to your business. You might even hire some co-workers as part-time employees of the LLC. There is no telling how this could all work out.
This article has outlined some of the steps to take to keep your job and start an LLC. It is certainly possible and well within your reach. Any new business is a risk and a time-consuming affair. It requires dedication and hard work. Do not let your current job stop you from starting your dream business with an LLC.
Remember to be careful and do not try to cut corners. It can all work out by following the rules and using good business sense.