Can I Form an LLC While Employed or Working at Another Job?
Side Hustle from Home
One of the best ways to test the waters of entrepreneurship or side hustle is to launch a side business in addition to maintaining regular employment. It’s a great method to bring in some extra cash when you need it. In most circumstances, though, you’ll want to keep your day job while you launch a side hustle, either to provide financial stability while your startup gets off the ground or just to supplement your current income.
Contrary to popular misconception, starting an LLC while still employed by another firm is perfectly legal. Forming an LLC is governed by different laws in each state, however, states often do not inquire as to whether or not the founders are currently employed. When founding an LLC, a person’s work position does not matter legally in the eyes of the state. However, before submitting paperwork to establish an LLC, one must think about a number of additional factors.
State LLC Formation Rules and Regulations
Due to state rules for create an LLC, you may believe that you are unable to start an LLC while still working for another company.
While the steps you need to take to create an LLC may change based on the state in which you reside, no state will investigate your job history if you file an application to do so. The fact that you may or may not be gainfully employed at the time of forming your LLC has no impact on your ability to meet the requirements of the law in your state.
Your Employment Contract
The terms of your employment or job contract, or in the absence of such a document, your employer’s policy on employees who run side enterprises, are likely the most essential considerations you will need to make before launching a side business on the side.
Is there a clause stipulating who gets to keep any intellectual property you make on the job or while you’re there, such as software or a new product idea?
Remember that your employer may claim ownership of any inventions you create while on the clock or using company property if you plan to utilize them in your new side venture.
But what if the core of your new company isn’t an original idea? If that’s the case, will your side hustle threaten the success of your main job? Is there any other way in which you’re launching a business while still working that might cause a rift between you and your current employer?
Non-compete clauses are common in employment contracts, preventing workers from founding rival enterprises; job contracts may also include similar conditions, barring workers from doing outside activities that might create a conflict of interest with their current position.
The formation of a second LLC on the side is often prohibited by the terms of employment. Workers should read their contracts thoroughly to protect themselves from future legal issues. All intellectual property developed by an employee in the course of their employment and while using the employer’s resources may become the property of the employer, depending on the terms of the employment agreement.
Potential conflicts of interest may also develop if the new venture directly competes with the employee’s current place of employment. An employee who signs a non-compete provision in their employment contract can’t start a competitive firm during their time with the company. Employees may be prohibited from engaging in activities outside of their employment that might create a conflict of interest.
Should You Tell Your Employer?
How transparent you should be with your employer about your side gig is a hotly debated topic. If your boss finds out about your side hustle, he or she may fear that you aren’t fully committed to your day job, and they may also worry that you will inappropriately utilize company time and resources for your new enterprise. On the other side, your employer may be a perfect fit for your new firm because of the product or service it offers. Though it’s always advisable to be as honest as possible with your employer, you are in the best position to decide whether or not to disclose your new venture.
Dealing with Tax Issues
Income from an LLC is reported on Schedule C of Form 1040, Individual Income Tax Return unless the LLC is taxed as a corporation, in which case the LLC pays taxes as a corporation and files its own corporate tax return.
Making It Work
So, you’ve looked over your employment agreement and found that it doesn’t prohibit you from establishing your new firm while you’re still employed there. If you want to start a successful side company while still keeping your day job, consider the following advice.
Understand the time commitment involved in running a side company. Your new business endeavor will require you to put in time outside of your usual employment schedule. As a result, you should expect a significant decrease in your personal time.
Avoid the temptation to check email or respond to messages regarding your startup while on the clock. Even if you simply need a few seconds to respond to a customer’s email, you shouldn’t use company time to do so. Avoid the temptation to work on your new venture while at your current employment; doing so would be unethical and might get you in hot water with your employer.
In the same way that you shouldn’t work on your business during company hours, you also shouldn’t utilize corporate time, equipment, or materials for your personal purposes. Making a few copies on the company photocopier after hours may seem like a good idea, but it’s unethical and might lead to repercussions.