Can I Form an LLC While Employed or Working at Another Job?

By Roberta Codemo

Can I Form an LLC While Employed or Working at Another Job?

By Roberta Codemo

Starting your own limited liability company (LLC) and striking out on your own can seem daunting. It might be a smart idea to keep your full-time job until your business gets off the ground and starts producing a steady income stream.

Woman standing next to desk with desktop computer on it

It's not uncommon for first-time entrepreneurs to start their own companies as side businesses. Studies show that “hybrid entrepreneurs"—individuals who start their own businesses while already employed elsewhere—are more successful.

If you're ready to strike out on your own, you can form an LLC while working at another job. Just be sure you're legally in the clear.

Limited Liability Company

An LLC is the most common business structure. Although state laws governing the formation and registration of an LLC vary from state to state, there is nothing in the statutes that bars someone from starting an LLC while employed. Your employment status is irrelevant.

An LLC is possibly the easiest type of business to start and is treated as a separate legal entity from the owners, also called members, of which there can be one or more. It has the tax advantages of a partnership or corporation and the limited liability protection of a corporation.

Company Policy

You don't want to start off your LLC on the wrong side of the law—particularly as far as your current employer is concerned. Always make sure your company doesn't have formal policies in place that prohibit employees from starting a side business. You don't want to have a great idea for a business and later find out it's a conflict of interest or competes with your current employer. This could be grounds for termination.

When you were hired, you may have signed one of the following employment documents during orientation:

  • Employment contract
  • Nondisclosure agreement
  • Noncompete agreement.

This is a good time to review each document that you signed. Examine each carefully and, if you don't understand something, talk to a trusted advisor. You want to avoid any questions of legal impropriety from the beginning.

For example, you might find that your employment contract prohibits employees from starting an LLC or engaging in a side business that might lead to a possible conflict of interest. There may also be an agreement that states all work created by an employee or using company resources belongs to the employer. You don't accidentally want to use proprietary intellectual property that belongs to your employer—doing so could lead to a potential lawsuit.

Companies may also require employees to sign a noncompete agreement that prohibits starting a competing business on the side or after employment terminates. These agreements often are in force for two years after an employee leaves the company.

Make sure you understand the specifics of your employment agreements. The future success of your new LLC depends upon it.

Current Employer

While it sounds counterintuitive, you may want to be transparent about your plans and notify your current employer that you intend to form an LLC while working for them. There are risks involved with doing this, so think through your decision carefully or it could backfire. For example, your employer may question your company loyalty, worry about you using company resources or company time to work on your business, or have concerns about how your business might affect your performance. If your employer has any doubts, they may question whether to keep you on board.

Maintaining Clear Boundaries

There are obvious considerations to take into account when forming an LLC while already employed, such as not working on your side business during company time, not using company resources such as your work computer, and not poaching past or current employees and clients. As tempting as it is to use your employer's office equipment to make a copy of LLC documents, for example, it's unethical, unprofessional, and likely in clear violation of your employment contract, which could lead to problems in the future. So be sure to separate your day job from your side job.

By following the above guidelines, you can rest assured that when you do finally part ways with your employer to go full-time with your new LLC, you'll be leaving on good terms—and not because you've violated the terms of your employment.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.