An LLC, or limited liability company, is the most common type of business entity for new small businesses. An LLC is an independent business entity separate from its owners -- who are called members -- and may be owned by one or more people. LLCs are formed under state law, and the procedures for creating and registering an LLC differ somewhat from state to state. While state laws do vary in LLC registration requirements, there is nothing in LLC formation laws that looks at a person's employment status to determine eligibility to form an LLC. In most states, anyone who has the legal power to enter into contracts can start an LLC or any other form of business -- or multiple businesses.
Although LLC formation laws allow you to start up an LLC while you are employed elsewhere, your job contract may preclude you from doing so. Many employers prohibit employees from engaging in any outside work which would create a conflict of interest with their employment or require approval from your boss before taking outside contracts that generate income. Many employers also have a code of ethics which prohibit use of company time and resources for personal or outside work. Starting an LLC that competes with your employer by taking away customers or selling similar products can be considered disloyalty and be lawful grounds for firing you from your job.
Taxing Wages and LLC Income
LLCs can opt to be taxed as a corporation or as a partnership. If the LLC is taxed as a corporation, the LLC will file its own corporate tax returns with the IRS and state tax agencies. Income from the profits of an LLC taxed as a corporation would then be reported on your personal income tax form in the same manner as other corporate dividend payments. If you opt to have your LLC taxed as a partnership, or if you own a single-member LLC treated as a sole proprietorship, your income from the profits of your LLC will be reported on your personal income tax form by completing Schedule C to form 1040. The IRS anticipates that people may earn income from multiple sources and includes separate boxes to enter profit and loss from a business, corporate earnings and employment wages on your personal income tax form 1040.
Although it is legal and feasible to start a business while holding down a job, doing so requires an investment of considerable time and energy. If your family and friends are not involved in your new LLC operations, you may have limited time to spend with them. The time spent at your current employment is also time that you cannot dedicate to growing your own business as expeditiously as you might like. On the other hand, leaving a job with a steady paycheck too soon -- before the income from your LLC can support you and your dependents -- can create financial stress.