Can an Employee Start a Startup While Working for Another Company?

Starting a startup while employed at another company can be both a dream and a challenge. This article explores the legal implications and practical considerations of such endeavors, providing essential advice to both employees and employers.

Understanding Your Employment Contract

The first step in determining whether an employee can start a startup while working for another company is to read and understand the employment contract.

Many employment contracts specify that anything created while employed, including intellectual property (IP), belongs to the company in perpetuity. These stipulations might be found in tiny font or even in addenda that the employee may have overlooked. It is crucial to consult a lawyer to ensure that your rights as an employee are properly understood.

Employer's Perspective

From an employer's perspective, allowing an employee to start their own startup may depend on the nature of the start-up and the specifics of the employment contract. If the start-up could be seen as competing with the employer's work, it might be a no-go. However, if the start-up is in a non-competing industry or does not interfere with the employee's current job, there may be more flexibility.

As one expert notes, if an employee cannot or chooses not to get approval from their employer, they should still proceed with caution. However, it's wise to consult with a business lawyer to explore any potential legal issues.

Practical Considerations

Even if an employee is allowed to start a startup, there are several practical steps they should take to avoid any negative consequences:

Keep activities confidential: Avoid letting your current employer know about your side business, as this could lead to dismissal before you are ready to start full-time. Avoid conflicts of interest: Make sure your start-up does not compete with your current employer. Starting a business in a non-competing field is safer. Do not use company resources: Do not engage in startup activities during work hours or use company property or resources. Using these resources can lead to conflicts and legal issues. Seek outside funding: If possible, use outside capital to fund your startup, as this reduces the financial risk to your current employer. Consult professionals: Ensure you understand all the legal, financial, and regulatory issues by consulting with lawyers and accountants. Regulated environments, such as HOAs or specific city/county ordinances, require extra attention.

One person shares their experience of running several businesses while working for other companies from 1990 onwards. Despite initial concerns, they found ways to work around potential issues and even made additional income through various services and designs. Success was attributed to careful planning and avoiding any conflicts of interest.

Overall, while starting a startup while working for another company is possible, it requires careful planning, adherence to legal guidelines, and consideration of practical constraints.