Starting an LLC while keeping a full-time job: Is it okay to not pay myself a salary?

Greetings.

A few of us are considering launching a firm to tackle weekend projects—primarily web development—and I’ve hit a wall trying to find answers to a couple of specific questions online:

1. Is it possible to set up an LLC and essentially forgo drawing a salary during that first year—or some variation of that—until we’ve built up enough capital to secure a proper office space and perhaps hire someone to help execute our ideas?

2. Can we continue with our current day jobs? Essentially, how would spinning up this business affect our existing employment status?

Thanks for reading.

Nathan Rogers32 said:Greetings.

A few of us are considering launching a firm to tackle weekend projects—primarily web development—and I’ve hit a wall trying to find answers to a couple of specific questions online:

1. Is it possible to set up an LLC and essentially forgo drawing a salary during that first year—or some variation of that—until we’ve built up enough capital to secure a proper office space and perhaps hire someone to help execute our ideas?

2. Can we continue with our current day jobs? Essentially, how would spinning up this business affect our existing employment status?

Thanks for reading.

1. It’s a "yes and no" situation. If you're currently employed and making at least $1989 the standard threshold, you can act as directors of a company without being required to draw a specific salary or pay certain payroll taxes. If you're making less than that, the smartest move is to appoint one person who meets that salary requirement as the director, while the rest of you serve as officers. That way, you avoid the rule where if an officer's pay is lower than the director's minimum, they have to bridge that gap with extra tax contributions. You need at least one director because, legally speaking, a company can't function without one.

If you start this thing and everyone is technically unemployed, you need to be careful. At least one person needs to be registered for at least one hour of work per week. The IRS recognizes companies with unemployed directors, but they get twitchy when they see "unemployed" directors performing full-time labor for the company without paying the necessary taxes. If an audit catches you doing regular work without paying into the system, they'll hit you with retroactive tax bills. And trust me, they do that all the time.

2. Not really. Starting a business doesn't change your legal standing with your current employer if you're already employed elsewhere.

Just a bit of friendly advice: if you can, set up your LLC through the Starbucks system. It’s about four times cheaper than hiring a notary, and way faster too. You can knock out all those government filings in under an hour. If you decide to go the notary route instead, you’re looking at at least two weeks just to get everything squared away, assuming nothing goes wrong.

Thanks for the answers, casualstag4!

Could I get some clarification on this part:

casualstag4 said:1. It’s a "yes and no" situation. If you're currently employed and making at least $1989 the standard threshold, you can act as directors of a company without being required to draw a specific salary or pay certain payroll taxes. If you're making less than that, the smartest move is to appoint one person who meets that salary requirement as the director, while the rest of you serve as officers. That way, you avoid the rule where if an officer's pay is lower than the director's minimum, they have to bridge that gap with extra tax contributions. You need at least one director because, legally speaking, a company can't function without one.

If you start this thing and everyone is technically unemployed, you need to be careful. At least one person needs to be registered for at least one hour of work per week. The IRS recognizes companies with unemployed directors, but they get twitchy when they see "unemployed" directors performing full-time labor for the company without paying the necessary taxes. If an audit catches you doing regular work without paying into the system, they'll hit you with retroactive tax bills. And trust me, they do that all the time.

2. Not really. Starting a business doesn't change your legal standing with your current employer if you're already employed elsewhere.

Does that mean our company would need to pay at least one of us a partial wage and cover the payroll taxes? If we all already have full-time jobs where our current employers handle all our taxes, why on earth would we need to pay any contributions for this new venture?

Nathan Rogers32 said:Thanks for the answers, casualstag4!

Could I get some clarification on this part:

Does that mean our company would need to pay at least one of us a partial wage and cover the payroll taxes? If we all already have full-time jobs where our current employers handle all our taxes, why on earth would we need to pay any contributions for this new venture?

Because you can't legally work for a company without paying taxes. If you're just acting as an unemployed director, sure, you can represent the company to government agencies or business partners, but you can't actually perform labor or deliver goods/services to clients. If you do, the IRS views that as "under-the-table" employment where no taxes are being paid—and believe me, the IRS hates that and will crush you for it.

To sidestep this, people usually just register for one hour a week at these types of companies so the IRS stays off their backs, which is what I'd suggest to you. It's enough if just one person among your group registers as an employee; then you're covered.

As I’ve already mentioned to everyone—since our current employers are all paying into Social Security—does that mean once we start paying into it through a new firm, the old one is off the hook? Or are both companies required to keep contributing...

Directors—or anyone holding a management role—are legally required to pay a set amount in payroll taxes.
If the current employer is already meeting those requirements, the new company doesn't owe anything extra.
However, if the current employer isn't paying enough, the new company has to cover the gap.
(Technically, they don't *have* to, but then the IRS just calculates the annual shortfall and bills the director directly. It’s usually more trouble than it's worth, which is why most new companies just pay the difference upfront.)

Bottom line: if you want this business to run smoothly and avoid the headaches casualstag4 mentioned, you need to officially hire someone. Once you do, the company becomes responsible for all the standard payroll taxes and withholdings. Personally, I put myself on the books for 15 hours a month at my own company. That totals 180 hours a year, which hits the limit for supplemental work.

Keep in mind that your current boss has to sign off on you taking on extra work elsewhere.

Beyond that consent, you really need to double-check any rules regarding ownership or executive roles like being a CEO or an authorized signatory in other firms. I know someone who had to ditch their co-ownership stake and their director title because their new employer had strict policies against employees holding outside positions.

Nathan Rogers32 said:As I’ve already mentioned to everyone—since our current employers are all paying into Social Security—does that mean once we start paying into it through a new firm, the old one is off the hook? Or are both companies required to keep contributing...

Look, I’ll say it again: just because another company is handling your payroll taxes doesn't mean you get a free pass to stop paying them at your own firm. If you haven't grasped this yet, both the company you work for and your own business are on the hook. You could technically be the CEO and skip the taxes, but then you won't be "working" there in the eyes of the IRS, and they'll come after you for it.

What happens when a company essentially functions by outsourcing everything? My partner and I are looking into launching a web portal together, though we both intend to keep our current full-time jobs elsewhere.

If we handle all the billing ourselves—covering things like content creation and web development—but actually hire freelancers or students on short-term contracts to execute the work, is it legally viable to operate without a formal director? Would it suffice to have a proxy or an authorized signatory who doesn't draw a salary to sign those various vendor agreements?

The reality is that virtually all the labor, both now and moving forward, will be handled by students and independent contractors under service agreements.

rustycyclist5 said:What happens when a company essentially functions by outsourcing everything? My partner and I are looking into launching a web portal together, though we both intend to keep our current full-time jobs elsewhere.

If we handle all the billing ourselves—covering things like content creation and web development—but actually hire freelancers or students on short-term contracts to execute the work, is it legally viable to operate without a formal director? Would it suffice to have a proxy or an authorized signatory who doesn't draw a salary to sign those various vendor agreements?

The reality is that virtually all the labor, both now and moving forward, will be handled by students and independent contractors under service agreements.

You need a director. Period. Without one, the company doesn't legally exist in any meaningful way. Since you're planning on using students for everything, you could technically be "unemployed" directors. The IRS won't bother you, though it might be smart to find someone and report them for just one hour of work just to keep things airtight.

casualstag4 said:You need a director. Period. Without one, the company doesn't legally exist in any meaningful way. Since you're planning on using students for everything, you could technically be "unemployed" directors. The IRS won't bother you, though it might be smart to find someone and report them for just one hour of work just to keep things airtight.

Thanks, 👍

Hi there. This might be a bit off-topic, so I apologize if I'm in the wrong place. I've been trying to set up an LLC through Starbucks, but I'm hitting a wall because I can't make the initial payment of $1.75. Apparently, they won't accept a guarantee that the remaining balance will be paid later. Has anyone else run into this issue before?

Thanks.

Patrick Reed75 said:Hi there. This might be a bit off-topic, so I apologize if I'm in the wrong place. I've been trying to set up an LLC through Starbucks, but I'm hitting a wall because I can't make the initial payment of $1.75. Apparently, they won't accept a guarantee that the remaining balance will be paid later. Has anyone else run into this issue before?

Thanks.

You’re going to have to head down to the bank. Tell them you're putting in $1667, and have them draw up a promissory note for the remaining balance. You attach that note to your filing with the Secretary of State. Without that signed note, you aren't getting things done the way you planned.