Can I Start An LLC While Working for Someone Else?

Many successful entrepreneurs started their businesses while working a day job. They would start their day with a nine-to-five grind and end it with late-night brainstorming sessions, an excellent approach to bringing their dream business to life.

You get to develop your dream venture with the safety net of a full-time job. But is it advisable to start a business entity, like a limited liability company (LLC), while still employed by someone else?

In this blog, we’ll discuss whether you can form an LLC while employed and explore the challenges you may face if you start a business while working full-time.

What is An LLC?

Before we discuss whether you can start an LLC while employed, let’s first talk about how they work.

A limited liability company (LLC) is a legal entity that operates independently of its owners or LLC members. It can enter into contracts and be sued using its own name, meaning its members will not be personally liable for any obligation it fails to fulfill.

This legal shield is one of the many benefits that LLCs offer entrepreneurs.

Can I Start An LLC While Employed? Factors to Consider

So, can you start an LLC while employed? Technically, yes, you can.

Although LLC formation laws vary from state to state, no law prohibits employed individuals from forming them. Most states won’t even ask about your employment status when establishing an LLC.

However, there are a few factors you must consider before you do anything else:

Employee Contract

The first thing you must check before you start an LLC is your employment contract. There may be stipulations in your employment agreement that prohibit you from doing certain activities, such as:

• Non-compete Clauses: These provisions forbid employees from soliciting work or working for a company that directly competes with the employer’s business, either during employment or for a certain period after they leave the company.  
• Non-disclosure Agreement (NDA): Many employment contracts include NDAs that prevent employees from using or disclosing proprietary information, such as trade secrets, client lists, or strategies they may have learned from their employer.
• Resource Restrictions: Some contracts have resource restrictions, which require employees to dedicate their full working hours to the company and prohibit using company resources for personal matters.

Violating these provisions could result in fines and even lawsuits, so you must review your contract before starting an LLC. Consulting a lawyer can also be helpful.

Taxation

Running a business while working full-time also has tax implications. Your tax filings will become more complicated once you start your LLC.

The IRS treats LLCs as pass-through entities, meaning they don’t pay corporate income taxes. Everything they earn goes straight to their owners, who will report them on the Schedule C portion of their personal tax returns.

Once you start a business while working full-time, you’ll have to file the W-2 form your employer provides alongside your Schedule C form. 

Your tax burden may also increase since you must pay self-employment taxes, including Social Security and Medicare.

Ethical Considerations

Lastly, as with starting any business, you may face various ethical issues. For instance, you may be tempted to answer client calls or emails at work.

Your employer may also be concerned that your side hustle could affect productivity.

Challenges of Running a Business While Working Full Time

In addition to the factors we’ve discussed, it’s also crucial you consider the challenges you may face when running a business while working full-time:

Time

Time is one of the biggest challenges you will face when starting a business while still employed. You must learn how to balance your time so that you can work on your LLC without sacrificing your 9-to-5.

One way to do this is to create a schedule. Set aside specific times in your week to focus on your business, and organize your tasks based on urgency and importance.

Productivity apps like task managers and calendars, which streamline your workflow, can help you stay on top of your LLC and day job.

Funding

Funding is another significant challenge you’ll face when establishing your LLC. While there’s nothing wrong with using your paycheck to finance your business, this setup can be limiting. Once your LLC starts to gain traction, its financial needs will grow.

This is where building business credit comes in. A good credit score will help you secure additional funding through business loans and lines of credit. More importantly, building business credit will help you separate your personal and business finances.

Although LLCs have a “corporate veil” that protects their members from personal liability, it’s not impenetrable. Courts can “pierce the veil” if they believe the LLC is being misused. One example of this is when you comingle your finances.

Maintaining a clear financial boundary between you and the company will be crucial to preserving your liability protections.

Long-term Growth

Securing long-term growth can also be difficult when running a business while working full-time.

Growing your business may take longer since you will divide your time and energy between your 9-to-5 and your LLC. The other challenges we’ve mentioned can also significantly impact your LLC’s scalability.

Inadequate resources and limited availability could slow product development and customer acquisition.

So, although starting an LLC while still employed is a good idea, it comes with various challenges that can heavily affect the pace of your business growth.

Is Starting an LLC While Employed Right for You?

Starting an LLC while working full-time is a smart way of pursuing your entrepreneurial dreams without sacrificing financial stability. However, it is not without its challenges.

From understanding your employment contract to learning how to manage your time and resources, running a business while working full-time is no easy feat. Fortunately, NCH is here to help you form and maintain your LLC.

NCH specializes in LLC formation. Our business formation experts will help you set up your company and ensure it complies with state and federal regulations.

In addition to formation services, NCH offers ongoing business solutions like tax and compliance assistance.

Start your entrepreneurial journey today with NCH! To learn more about our services, visit our website here or call us at 1-800-508-1729 to schedule a free consultation.

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.