Starting an LLC: Where to begin?

Vicky said:It’s not mandatory back then—but you won't be eligible for health insurance or other benefits if you're technically unemployed.

About three or four months ago, I decided to finally settle this dilemma once and for all. I went down to my local IRS office and eventually sat down with his supervisor since I didn't know where else to turn, and I asked them this exact question.

He gave me an answer right there in front of several of his colleagues acting as witnesses: he claimed it is impossible to be an "unemployed director." According to him, a company cannot legally operate without having at least one employee who is paying into social security, Medicare, and payroll taxes.

Now I’m stuck on how to handle this. I realize that if I ever end up facing a penalty and need to file an appeal, a judge isn't going to accept printed screenshots from an online forum as valid evidence. 😉

So, moving on to the actual point: where can I go to get an official, undeniable confirmation that a business can operate while the director remains unpaid (meaning no Social Security, Medicare, federal or state income tax contributions, etc.)?

An LLC has to have at least one employee. I mean, I don't want to get all philosophical here, but let’s be real—a corporation is just a legal entity, right? It can't exactly go out and do stuff on its own unless there's an actual human being behind the wheel to make things happen.

So, what’s the deal? Is it mandatory or not?
That’s why I started this thread. Half the people I talk to say yes, the other half say no.

Here’s the situation: I want to set up an LLC to focus on R&D and marketing, then eventually transition everything over to my main company once the timing is right. I have two associates, one of whom would be a co-owner. We’d all put in the work for a few years to scale the business before moving operations over. But that plan only works if I'm not forced to maintain a specific headcount in this LLC. Basically, I need to know if I can stay lean without running afoul of tax obligations or payroll requirements based on my bank activity.

From what I've gathered, an LLC doesn't even need to have a single employee on the payroll. And honestly, if you really wanted to make it look official—which, hey, maybe you do!—there’s a super easy workaround: just hire your grandma or your little brother for like, one measly hour a week. It would "cost" the LLC $167 per month.

cartmann said:I’m honestly stuck on how to react here! I have a feeling that if I ever end up facing a fine and decide to appeal, the court probably won't accept printouts of posts from this forum as actual evidence. 😉

Probably not 😉, unless the forum happens to be right 😁

The Companies Act amendments introduced a requirement for corporations to employ at least one board member and at least one full-time employee at every branch office. This mandate applied specifically to companies actively conducting business that were previously required to have at least one executive and one permanent staff member per branch before starting operations. If a corporation wasn't actually operating, this hiring rule didn't apply to them. On May 10, 2000, the Supreme Court of the United States held a session and issued a ruling to review whether the provisions in Articles 2, 7, and 8 of the Companies Act amendments were consistent with the Constitution of the United States, ultimately striking those specific provisions down. The Supreme Court also issued a decision rejecting proposals to challenge other parts of the Act. These decisions and rulings by the Supreme Court of the United States were published in the Federal Register, issue number 52, on May 23, 2000.

I really hope you all are happy & satisfied with this!

jadesailor14 said:...If a corporation wasn't actually conducting business, the hiring mandate didn't apply...

What does that actually mean in practice? This is drafted so poorly it’s almost laughable. What qualifies as "not conducting business"? Does it mean I can't have a single cent moving through my business account, or what?

cartmann said:Anyway, moving on—where can I go to get definitive confirmation that a company is legally allowed to operate with a director who isn't technically an employee (meaning they aren't paying payroll taxes, Social Security, Medicare, etc., through that specific entity)?

That’s not what I asked. My question was: can an LLC have a director who is already employed by another company? Basically, someone who stays fully compliant with the IRS and all tax obligations, just not through the firm where they serve as director. Furthermore, does such a company need to hire at least one additional employee to meet the minimum staffing requirement?

From what I can gather, the only real solution is to have at least one employee on the books. It’s either you acting as the director or someone else. But then what happens with the taxes? If I'm working elsewhere, am I stuck paying double the payroll taxes, similar to how it works for sole proprietors?

swiftscout8 said:What does that actually mean in plain English? This wording is super vague. What do they mean by "not conducting business"? Does that mean I can't have any activity at all on my bank account?

It’s not vague, it’s just formal legal speak!

If the company was basically dormant—meaning zero income coming in and absolutely no expenses going out, or no transactions hitting the bank account at all—then yes, that counts.

swiftscout8 said:That’s not what I was asking! My question was: can an LLC have a director who is actually employed by a different company? Basically, everything is paid up to the IRS properly, just not through the company where they serve as director. Also, does that company need to hire an additional employee to meet the one-person minimum requirement?

From what I can gather, the only way is to have at least one employee on the books. It's either you acting as the director or someone else. But how does that work with payroll taxes? Am I stuck paying contributions in two different places, similar to how it works for sole proprietors?

An LLC doesn't actually need to have any employees at all, which means you don't owe any payroll taxes or social security contributions from employment if no one is working there.

There was a brief window where the law required it, but that rule was scrapped.
That's why I pasted the info above—some people are still stuck living in the past!😉

swiftscout8 said:That’s not what I was getting at! My question was: can an LLC have a director who’s actually on the payroll of some other company? Like, everything is totally above board with the IRS, but the salary isn't coming from the company they're directing. Also, does that company still need to hire an extra employee just to hit that one-person minimum requirement?

From where I'm sitting, it looks like there’s really only one way out: you gotta have at least one person on the books. It’s either you acting as the director or someone else. But then what happens with the taxes and payroll stuff? Am I stuck paying double contributions in two different places, kind of like how it works with a sole proprietorship?

If that's the case, who's stopping you from just signing up for minimum wage?

Nicholas Sanchez3 said:If that’s the case, what’s stopping you from just signing up for minimum wage?

LOL. So I should just burn an extra $333 every month because our government can't seem to fix its own laws? Or rather, because they've already managed to screw everything up in the meantime. Brilliant. Way to go, United States of America. Do they honestly think money grows on trees? As if being one of those $333 would net me better healthcare or a higher pension. I'd rather have things easy.
With this kind of attitude and these regulations, I might as well just pack up and move my business overseas. 🙄

swiftscout8 said:That isn’t what I asked! My question was: can an LLC have a director who is already employed by another company?

You didn't, but I did. I don't see why you're confused. 🙂 By the way, you got your answer.

swiftscout8 said:So everything is settled with the government, just not through the company where the director works. Next, does such a company need to hire an additional employee to meet the one-employee minimum requirement?

From what I can tell, there's only one solution: you have to have at least one employee. Either it's you as the director or someone else. But then what happens with payroll taxes and benefits? Am I forced to pay those in two different places, similar to how a sole proprietorship works?

You've scrambled the facts, and the solution is actually quite straightforward. Stop comparing this to a sole proprietorship; that is a completely different scenario.

Based on what the colleague is saying, you don't necessarily need to hire anyone.

Scenario A: You work a teller job at JPMorgan Chase, and alongside that, you decide to start an LLC for software sales. In this case, you don't need to be an employee of your own LLC or pay yourself payroll taxes because your employer is already handling that.

Scenario B: You have a degree but can't find a job, so you're scraping together pennies from your savings $2.75 just to afford coffee with friends. You have no health insurance or Social Security contributions. Since you can't find work anywhere, you decide to open an LLC for software sales. Under previous laws, you would have had to officially employ yourself and pay yourself roughly $200 Social Security, $200 Medicare, and other various taxes every month. We're talking about $1,500-$533 total per month. That would have been a bad move, because you likely won't be pulling in enough software sales in those first few months to cover all those mandatory costs. In fact, you might never hit the level of monthly revenue needed to break even on those expenses. 🙂

Scenario C: You have a degree, no health insurance, no Social Security coverage, no money, and no luck finding a job. You decide to launch an LLC to sell software. You make a sale once in a while, the LLC stays active (it has revenue, pays sales tax, etc.), but there isn't a single employee on the books—meaning you aren't stuck with that $$500 monthly bill for Social Security, Medicare, and taxes. The downside here is that you have zero health coverage if something goes wrong, and you aren't building any retirement savings.

Look, it’s perfectly legal for one individual to sit on the board of directors for multiple different corporations at once. They don't even have to be officially listed as an executive for every single one of them—they can just hold a primary position at one firm while maintaining leadership roles elsewhere without being formally registered in every single database...

You’re all heading in the wrong direction here. darkraven10, you keep framing every single example around me as an individual. Look, I don't necessarily have to be on the payroll of my own LLC, but I can certainly serve as the Director. But what does that actually mean for the LLC itself? Put yourself in the shoes of the corporation and tell me: in that scenario, would I really need to hire someone else?
Harold Vaughn6, I couldn't care less whether I'm legally allowed to be the director of ten different companies. I know I am. That's a given.
Such simple questions... yet nobody seems interested in answering how things actually work. You keep focusing on me as a person, which is irrelevant to the point. What I'm asking is whether I can maintain a company without any employees and leave it inactive for a period of time. In other words, just letting money bleed out.

An LLC can operate, generate revenue, and handle expenses without having a single employee on the payroll.
Is that clear enough for you? 😁
It’s just like what Banderas told you right away

The only thing I don't get is why you aren't looking to actually run a business instead of just burning through cash?
Where is that money coming from anyway?

swiftscout8 said:darkraven10, you’re assuming I’m centering every single scenario around you personally. That isn't how this works. I don't have to be an employee of my own LLC just because I hold the title of Director. But let’s look at this from the company's perspective instead. Put yourself in the shoes of the business and tell me: in that situation, would there actually be a need to hire someone else?

Don't take my personal feelings into account; frankly, I couldn't care less about them.

So, you're asking if it's actually possible to run a business without completely losing your identity in the process.

🤣

swiftscout8 said:I'm wondering if it's possible to keep a company running without having any employees and essentially staying inactive for a while—basically just letting money bleed out.

You can.

jadesailor14 said:The only thing I don't get is how you aren't planning on actually working, just spending money?
Where is the capital coming from?

My business plan isn't your concern.
Honestly, this subforum has been a massive letdown. A lot of noise, zero substance.
There are plenty of other places where I can dig into the specifics.
Best regards to the rest of the finance crowd here. 👋.
Short and sweet.

P.S. Hire someone who actually knows what they're talking about.
P.P.S. darkraven10, your irony missed the mark entirely. My goal is to launch my own startup, not screw over the IRS.

swiftscout8 said:I'm wondering if it’s possible to maintain an LLC without having any employees and just let the business sit idle for a while. Basically, just using it to burn through cash.

By "burning through cash," you're likely talking about reclaiming tax credits or something similar. 😁

Until you make your very first transaction, the company can essentially remain dormant—meaning you just file zero returns with the IRS and call it a day.
From what I understand 😁, once you process that first transaction through your business checking account, you generally have a 15-day window to register at least one person for Social Security and payroll taxes.
Apparently, if you miss that deadline, you're looking at penalties (at least, that's what I've been told).
I'd be curious to know what happens if you fail to register anyone while the company is technically "active." It would be helpful if someone who has actually navigated this specific scenario could share their experience.

Milky Way said:My business plan isn't your concern..

🤣
Exactly, I actually care about it!

I'd just love to watch you explain all those excuses to the IRS
It would be quite an education
And honestly? It sounds pretty entertaining 😍

Plus, every bit of income needs a solid paper trail and a clear explanation—you can't just show the expenses

Milky Way said:Honestly, this subforum has been such a letdown. So much talk and zero substance.
There are plenty of other places where I can find the actual details.
.

Yeah, it's always easier to point fingers at everyone else when you can't cut it yourself

danaye said:Spending money would involve claiming back sales tax. 😁

Until that first transaction happens, the company stays dormant (meaning you just file zero returns with the IRS, etc.).
From what I understand 😁, once that first transaction hits through the transition account, at least one person has to enroll in Social Security within 15 days.
I heard if you miss that window, you get hit with penalties (or at least that's what I was told).
What actually happens if you don't register anyone while the company is technically "active"? It would be great if someone who’s been through this could share their experience.

you don't have to

Could you please cite the specific law, section, or paragraph that says an LLC is required to register someone?
And where did this 15-day rule come from?
Didn't I already mention which legal bulletin stated that provision was repealed? Is it really that hard to check the facts?

How can you claim a sales tax refund if the company is dormant? If you're getting a refund, it means you bought or paid for something, which means there was cash coming in (seed capital, revenue, a loan, etc.), which—miraculously—means there was activity on the account.

If the business is dormant, you don't submit complex forms; you just file a statement saying there was no activity, and that's that!