Can I Form an LLC While I’m Employed or Working at Another Job?
One of the best ways to start a business is to treat it as your “side hustle” or side job while you keep working at your full-time day job. Starting a side business while still keeping your regular paycheck and employer benefits is an ideal situation in many ways: it gives you the confidence to test the waters with your new business idea, while still having the safety net of your day job’s income and insurance.
However, there are a few considerations to keep in mind when running a side business to make sure you stay in the good graces of the law and your full-time employer. Keep these tips in mind when operating your side business, and you’ll be more likely to succeed at both.
1. Obey Your Employment Contract
Many employees work “at-will,” meaning you can be hired and fired without consideration for a contract time period. But if you work in a job that is governed by an employment contract, make sure you read the fine print and consider consulting with an attorney before you start your side business. You will want to make sure any side business complies with the expectations of your employment contract. For example, contract language might forbid you from taking the employer’s intellectual property to other companies, or it could include a “non-compete” agreement that disallows you from competing with your employer or otherwise working with their clients.
Violating an employment contract can leave you vulnerable to lawsuits and damage your professional reputation. Don’t fall into this situation — if you’re working under a contract, make sure your side business idea is fully separate and avoids any concerns that might be raised by your employer or their legal counsel.
2. Read Your Employee Handbook
Even if you do not have an employment contract, take some time to read the fine print on your employee handbook or employee manual that is (hopefully) available to you at work — ask your HR department to provide an updated version if you don’t know for sure. Check to see if there are any company policies that prohibit outside employment or moonlighting. See if there are any concerns about conflicts of interest with your side business.
Keep in mind that even if you think your side business is totally fine and acceptable, that doesn’t mean your employer will agree — so consider asking an attorney for advice before you start. You don’t want to make yourself vulnerable to getting fired before you can get your side business off the ground.
3. Tell Your Boss (or Not?)
Depending on what kind of relationship you have with your supervisor at your day job — and assuming that your side business is not causing any conflict with your regular work schedule or responsibilities — you might want to openly explain that you are working on a side business. Especially if it’s in an unrelated industry (for example, if your day job is insurance and your side business is artisanal ice cream), your boss might be happy to hear about it — and might even let you test your new ice cream recipes at work!
It can also be helpful for you to proactively explain to your boss that this is “just” a side gig, and it isn’t going to take away your time or energy from being fully engaged at work; in fact, the extra inspiration and energy you get from your side business can even help you be more productive at your day job. Try something like this: “I’m learning a lot about managing client relationships and juggling multiple deadlines at once — I can bring these new skills to bear here at the company too!”
However, if you don’t have that level of trust and openness with your boss, you’re confident that your side business is no threat to your productivity and you’re certain your side business won’t get discovered or cause any awkwardness for you at work — feel free to just keep it a secret for now.
Your boss and co-workers don’t need to know everything about your personal life, right? Especially if you want to eventually turn your side business into your full-time income, it might be better if you keep it to yourself and work hard on transitioning to your new (self-created) career.
4. Make Your Side Business “Official”
Even if you don’t intend to replace your full-time income with your side business anytime soon, you still should make your business official as a legal corporate entity by forming an LLC. Your LLC can give you certain legal protections for your personal assets in case of a lawsuit against your business. It will also help you make your business “real” by getting a business bank account, keeping your business and personal finances separate and potentially saving you money at tax time.
Even if your side business isn’t making much money during the early stages, you still need to report any business income on your taxes, handle any required business licensing and make sure you’re covered for any insurance or regulatory compliance issues.
If you have a dream of starting a business, don’t let your day job hold you back — in fact, sometimes this is the best way to start a business. By testing your idea as a side business while keeping the paycheck and benefits of your regular employment, you can get the best of both worlds — just make sure you’re not endangering your relationship with your employer, exposing yourself to any lawsuits, or failing to follow the laws and regulations for running a legal business.
Are you ready to start a business, form an LLC or reorganize your current business structure with business incorporation services? Talk to Incfile today! Our incorporation experts can help you evaluate your options with state-specific advice.