No, you typically cannot collect unemployment benefits if you voluntarily leave your job to run your LLC-unless you meet specific exceptions or qualify for certain state-level programs.
Unemployment benefits are designed to help individuals who lose their jobs through no fault of their own. If you quit your job to pursue your business full time, you’re likely disqualified. However, there are scenarios where you may still be eligible, depending on the circumstances of your separation, your level of business activity, and your state’s rules.
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If You Quit Voluntarily, You’re Usually Ineligible
Most states will deny unemployment benefits if you voluntarily resign-whether it’s to travel, go back to school, or start a business like an LLC. Choosing to leave your job for self-employment is not generally considered a qualifying reason for unemployment assistance.
That said, there are exceptions in some states for individuals who leave for compelling personal reasons, such as health issues, harassment, or relocation due to a spouse’s job. Starting a business, however, is rarely on that list.
If You’re Laid Off While Running a Side LLC
If your LLC was already operating on the side and you are laid off from your full-time job, you may be eligible for unemployment benefits-as long as your LLC is not considered your primary source of income or employment.
To maintain eligibility:
- You must actively look for new full-time employment
- Your business activity must be minimal or passive (not full-time)
- You must report all income earned from the LLC while receiving benefits
If the unemployment agency determines you are self-employed or not available for full-time work, they may deny or discontinue your benefits.
Self-Employment Assistance Programs (SEAP)
Some states offer special programs that allow unemployed individuals to start their own business while still collecting unemployment benefits. These are called Self-Employment Assistance Programs (SEAP), and they’re available in select states like:
- New York
- Oregon
- Delaware
- Mississippi
- New Hampshire
- New Jersey
If accepted into a SEAP program, you may be allowed to:
- Work full-time on starting your business
- Continue receiving unemployment benefits
- Get access to business training and mentorship
To qualify, you must apply and be approved before you begin operating your business full time. Rules vary by state, so it’s important to check with your local unemployment office.
How LLC Income Affects Unemployment Benefits
If your LLC generates income-even small amounts-you are generally required to report that income when filing your weekly or biweekly claims. The state may reduce your benefits or disqualify you if they determine that your business is active enough to count as employment.
Some states evaluate not just income but also time spent working on the business. Even if your LLC earns little or no money, you could lose eligibility if you’re devoting full-time hours to it.
What If You Shut Down the LLC?
If you close your LLC and are no longer self-employed, you may be able to apply for unemployment-if you had prior W-2 employment that paid into the unemployment system. But quitting your job to try running a business, then shutting it down when it doesn’t succeed, may not qualify you. Most states do not offer unemployment support for failed entrepreneurs unless the job loss was involuntary and recent.
Important Reminders
- Always tell the truth: Lying or omitting information about your business activity can lead to penalties, overpayments, or fraud investigations
- Read your state’s eligibility requirements: Every state’s unemployment program is slightly different
- Keep documentation: If your LLC is passive or inactive, be prepared to show proof
If you voluntarily quit your job to run your LLC, you likely won’t qualify for unemployment. But if you were laid off and your LLC is still small, or if you live in a state that offers a Self-Employment Assistance Program, there may be a path to benefits. Always check your state’s unemployment office for specific rules, and don’t assume that your business disqualifies you automatically. In some cases, your entrepreneurial journey can coexist with temporary unemployment support-if you navigate it carefully.
