We earn commissions if you shop through the links below. Read more

Starting an LLC While on Unemployment

Written by:

Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.

Edited by:

David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.

Starting an LLC While on Unemployment

Any of us, at any time, could find ourselves out a job and in need of unemployment benefits. Yet even being on unemployment might be an entrepreneurial opportunity. You could use the time and the financial support to start your own business and build something great!

What is an LLC?

A limited liability company (LLC) is an increasingly popular business structure for startups, offering liability protection for ownership and greater flexibility than a corporation, particularly in terms of taxes. The LLC itself does not pay taxes. As a “pass-through” entity, income passes through the business to the owner or owners, who report it on their personal tax returns. An LLC is created by filing paperwork with your state, and nominal fees are involved.

An LLC offers its owner or owners, who are called members, considerable flexibility in terms of management. You can choose your management and operational structure and decide how you want to be taxed. Your LLC can have a single member or multiple members, all of whom have personal liability protection, meaning your personal assets are not at risk if you cannot pay business debts or are involved in a lawsuit.

Can You Start an LLC While Collecting Unemployment?

No state or federal laws prohibit you from starting a business while collecting unemployment. But it may affect the amount of your weekly benefits, as well as the time that you need to spend looking for a new job and the time you have to launch your business. State requirements vary, so it’s a good idea to check those of your state before moving forward.

If you start earning money from your new business, you’ll need to report that income and it may reduce or even end your unemployment benefits. In Ohio, for instance, you can earn up to 20% of your unemployment payment without your benefits being affected. If you earn more than 20%, the overage will be deducted from your weekly benefits.

Different states have different job searching requirements as well. You probably have to report a certain number of jobs that you’ve applied for weekly, which can be time-consuming. But failing to follow your state’s requirements can also lead to lost benefits. You’ll have to balance the time you spend on job searching with the time you spend on your business.

If you are offered a job while on unemployment you are legally expected to take it, and there are few legally acceptable reasons for you to refuse. If you don’t accept the job, you may lose your benefits. Then you will need to decide whether to take the job or pursue your entrepreneurial aspirations.

Can I Use My Unemployment Funds to Start a Business?

Depending on your state, you may not be able to use your unemployment funds to finance your new business. Those funds are meant to pay for your bills and rent and food. But in taking care of these key financial responsibilities, your unemployment benefits can free you up to focus on launching your new business. Your startup funding could come from your own resources, such as a savings account. There are other ways to fund your new business, including:

  • Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history. This will be very difficult to do while on unemployment.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Venture capital: Offer potential investors an ownership stake in exchange for funds, keeping in mind that you would be sacrificing some control over your business.
  • Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund an entrepreneur’s vision.
  • Personal: Self-fund your business via your savings, the sale of property or other assets, and support from family and friends.

You should check with your state to find out if getting funding for your business will affect your unemployment benefits.

Where Can I Find Resources to Help Me?

Some states participate in the Self-Employment Assistance Program (SEAP), which is designed to help the unemployed create their own employment by starting their own businesses. Check with your state’s department of labor to see if the program is offered.

SEAP provides the following:

  • It allows you to work on your new business while receiving unemployment benefits
  • You don’t have to look for work while establishing your business
  • Income from your new business is not be deducted from your weekly benefits
  • Resources, training, and counseling to help you start your business

To be eligible for SEAP, you must:

  • Be 18 or older
  • Be eligible for unemployment benefits
  • Have 13 weeks of unemployment available
  • Meet with a business counselor and complete 20 hours of training

If your state does not participate in SEAP, you can find other resources at America’s SBDC, the U.S. Small Business Association, and the National Association of the Self-Employed.


Even if you are unemployed, you can still seize the day and take the opportunity to start your own business and control your own destiny. You could end up creating work for yourself and creating jobs for others and contributing to the economy! Many successful entrepreneurs started their companies out of necessity. You might join them if you’re able to take the leap and take advantage of the resources and opportunity available to you.


Leave a Reply

Your email address will not be published. Required fields are marked *

Starting an LLC While on Unemployment