Starting an LLC While Employed: What You Need to Know

For many, the idea of entrepreneurship is exciting, offering a chance to pursue a passion or earn additional income.

Starting an LLC (Limited Liability Company) is a popular route for those who want to venture into the world of business.

However, if you’re currently employed, there are several factors you need to consider before setting up your own LLC.

Can I Start an LLC while Employed?

1. Benefits of Starting an LLC While Employed:

• Risk Mitigation: Being employed gives you financial stability. This means you don’t have to depend on your business income initially, which can be uncertain.
• Capital: A steady paycheck can fund your business in the initial stages, reducing the need for external investors or loans.
• Test the Waters: Being employed allows you to test your business idea’s feasibility without the pressure of it being your sole source of income.

2. Legal Considerations:

• Employment Contract: Before starting an LLC, review your employment contract. Some contracts have non-compete or exclusivity clauses, preventing you from starting a business, especially if it’s in the same industry.
• Intellectual Property: If you develop a product or service while employed, your employer might claim rights to that intellectual property, especially if it’s related to your job or if you’ve used company resources.

3. Time Management:

• Balancing Act: Managing a job and a business requires excellent time management skills. Ensure you can handle both responsibilities without one affecting the performance of the other.
• Vacation Time: Many budding entrepreneurs use their vacation time to focus on their business, especially during the initial setup phase.

4. Financial Implications:

• Taxation: Your tax situation will become more complex. You’ll have to manage taxes for both your salaried income and your business. Hiring an accountant might be necessary.
• Benefits: Starting an LLC might impact benefits from your employer, such as health insurance, especially if you switch to part-time or if your employer perceives a conflict of interest.

5. Ethical Considerations:

• Conflicts of Interest: Ensure that your business doesn’t pose a direct competition to your employer. Not only can this lead to legal complications, but it’s also an ethical grey area.
• Transparency: Depending on your industry and relationship with your employer, it might be wise to inform them about your LLC, ensuring there’s no perception of impropriety.

6. Long-term Considerations:

• Transitioning: If your business becomes successful, you might face the decision of leaving your job to focus on your LLC full-time. Plan for this transition, considering factors like financial stability, market demand, and personal readiness.
• Retirement and Benefits: If you leave your job to focus on your LLC, consider how this move will impact your retirement savings, health benefits, and other perks associated with traditional employment.

Conclusion:

Starting an LLC while employed is doable and, for many, a smart way to venture into entrepreneurship.

It offers financial stability and a safety net as you test and grow your business.

However, it’s essential to be aware of potential legal, financial, and ethical pitfalls.

Conduct thorough research, possibly consult with a legal professional, and ensure you’re making informed decisions every step of the way.

ALSO SEE: Do I Need an LLC for a Shopify Store?

FAQs on Starting an LLC While Employed

1. Can I legally start an LLC while being employed?
   • Yes, it’s generally legal to start an LLC while employed, but always review your employment contract for any restrictions.
2. Will my employer own any part of my LLC?
   • No, unless there is an agreement in place or you used company resources to establish or operate your LLC.
3. Can my employer prevent me from starting an LLC?
   • If there’s a non-compete or exclusivity clause in your employment contract, it might restrict you from certain business activities.
4. How will my taxes be affected if I start an LLC?
   • You’ll have separate tax obligations for your salaried income and LLC income. It’s advisable to consult with an accountant.
5. Can I use my office or company resources for my LLC?
   • It’s not recommended. Using company resources can lead to legal complications and potential claims over your business’s intellectual property.
6. Should I inform my employer about my LLC?
   • Depending on your relationship and industry, it may be beneficial for transparency and avoiding any perception of impropriety.
7. What if my LLC is in a different industry than my job?
   • This reduces potential conflicts of interest but always review your employment contract for any general restrictions on secondary employment or business ventures.
8. Will starting an LLC affect my job benefits?
   • Typically, no. However, if there’s a change in your employment status or if there’s a perceived conflict of interest, there might be implications.
9. Can my employer take legal action against my LLC?
   • If you breach your employment contract, use company resources, or there’s a conflict of interest, your employer might take legal action.
10. How can I manage time between my job and my LLC?

• Effective time management, setting clear boundaries, and possibly using vacation days can help manage both responsibilities.

11. Is it advisable to hire employees for my LLC while being employed?

• If you believe your LLC needs manpower and you have the resources, hiring can help manage the workload.

12. Can I convert my LLC into a full-time venture in the future?

• Yes, many entrepreneurs transition into their LLC full-time once it’s stable and profitable.

13. What if my LLC incurs losses? Will it affect my job income?

• Your LLC’s financial performance won’t directly affect your salaried job income. However, LLC losses might offer tax deductions.

14. Should I use my job salary to fund my LLC?

• This is a personal decision. Using your salary can bootstrap your business, but always ensure you maintain personal financial stability.

15. Will my LLC impact my retirement savings from my job?

• Not directly, but if you divert funds to your LLC instead of retirement savings, there could be long-term implications.

16. Can I get business insurance for my LLC while being employed?

• Yes, and it’s recommended to protect your business assets and operations.

17. What’s the best business structure for someone who’s employed: sole proprietorship or LLC?

• An LLC typically offers more legal protection than a sole proprietorship, but the best structure depends on individual circumstances.

18. Will my LLC’s performance impact my credit score?

• Your personal and business finances are separate, but if you personally guarantee business debts or your LLC faces legal judgments, it might affect your credit.

19. Can I set up an LLC anonymously while being employed?

• Some states allow for anonymous LLCs, but remember to maintain transparency with your employer to avoid conflicts.

20. Do I need a separate bank account for my LLC?

• Yes, it’s advisable to maintain separate finances for clarity and legal protection.

21. How will my employer view my entrepreneurial venture?

• Responses vary. Some employers might see it as initiative and drive, while others might perceive potential conflicts.

22. Can I start more than one LLC while being employed?

• Legally, yes, but consider the time and financial implications of managing multiple businesses.

23. Do I need a business license for my LLC even if I’m employed?

• Business licensing depends on the nature and location of the business, not your employment status.

24. Is it ethical to start an LLC in the same industry as my employer?

• It can be a grey area, especially if there’s potential competition or use of proprietary information.

25. Will my co-workers be able to invest in or join my LLC?

• They can, but ensure it doesn’t lead to workplace conflicts or breach any company policies.

26. How can I ensure that my LLC doesn’t interfere with my job responsibilities?

• Time management, setting boundaries, and possibly delegating LLC tasks can help maintain a balance.

27. Can I advertise my LLC at my workplace?

• It’s advisable to avoid this to prevent any conflicts or perceptions of impropriety.

28. Should I consider getting a business partner for my LLC?

• A partner can help manage responsibilities, but choose someone you trust and clearly define roles and ownership.

29. How do I handle business meetings for my LLC during work hours?

• Schedule meetings during breaks, after work, or use personal days, ensuring no conflict with your job.

30. Can I turn my hobby into an LLC while being employed?

• Yes, many successful businesses start as hobbies. Consider the legal and financial implications before making the transition.

31. What happens to my LLC if I leave my job?

• Your LLC operates independently of your employment. Leaving your job won’t directly affect its status.

32. Can I deduct my LLC expenses from my job income?

• Typically, you can’t directly deduct LLC expenses from salaried income, but there may be tax advantages to having business expenses. Consult an accountant.

33. Should I offer my employer’s customers services from my LLC?

• This can lead to conflicts of interest and potential legal issues. Always prioritize ethical conduct.

34. Can my job performance affect my LLC’s reputation?

• While they’re separate entities, personal reputation can influence business perception, especially if clients or partners know of your employment.

35. Is it easier to get a business loan for my LLC if I have a job?

• Being employed can show financial stability, which might be favorable in a lender’s eyes.

36. Can I transfer assets from my job to my LLC?

• Assets owned by your employer shouldn’t be transferred to your LLC. This can lead to legal complications.

37. How do I handle business emergencies for my LLC during work hours?

• Set up contingency plans, have reliable contacts, or manage them during breaks to avoid conflicts.

38. Will my LLC offer any benefits to my employer?

• Possibly, if there’s potential for collaboration or if your business skills enhance your job performance.

39. Can I hire my colleagues for my LLC?

• While it’s possible, it can lead to workplace complications. Ensure you maintain professional boundaries.

40. What’s the first step to start an LLC while being employed?

• Research the legal implications, review your employment contract, and consider consulting with a legal professional before taking any action.