Can you start an LLC while on California EDD unemployment?

This is really helpful thank you. So if I'm just doing prep work like setting up a website, creating service packages, maybe doing some networking - and haven't gotten paid anything - I don't need to report that as 'work'?

Correct - unpaid preparatory activities like building a website, writing a business plan, or networking aren't reportable as work hours to California EDD. The trigger is when you receive compensation. But keep detailed records of your activities just in case your claim goes through any review.

This is good info. I'd also add that you should be careful about what you answer on your weekly certification questions. One of the questions asks if you did any work or were self-employed. California EDD's guidance suggests that actively seeking clients could be considered 'operating a business' so the line can get blurry.

Yeah I've tried calling and just get the 'we're experiencing high call volume' message and then it disconnects. So frustrating.

Totally been there. I spent like 3 days straight trying to get through before I actually figured out a better way.

same lol the phone system is a nightmare

Wait this actually works? I'll definitely check that out because I really want to talk to someone at California EDD before I do anything.

I've heard of Claimyr too. Did they actually connect you with a real California EDD agent or just like a general customer service person?

A real California EDD agent, yes. The person I spoke with was able to look up my claim and answer questions specific to my situation. That's the whole point - you get an actual agent, not a recording.

going to look into this because I literally cannot get through to California EDD ever

This is a fair point. The DE 2320 is a good resource. I'd add that if California EDD does question your eligibility around this, you have the right to appeal any disqualification and explain your specific circumstances. Documentation of what you were and weren't doing during the claim period is crucial.

Okay now I'm more nervous again lol. So the safest approach is really just to call and ask them directly before doing anything?

Yes, getting it in writing or at least documented that you spoke with an agent and what they said is your best protection. And honestly if they disqualify you, the appeal process exists for exactly these gray area situations.

The DE 2320 pamphlet is legit - I found it after my own self-employment questions and it cleared up a lot. Not everything but a lot.

Not a dumb question at all. Single-member LLCs are treated as sole proprietorships for tax purposes which might factor into how California EDD views the self-employment question. Multi-member LLCs are treated more like partnerships. In practice though California EDD's concern is really about whether you're doing work and earning wages from the business, not the internal structure of the LLC itself.

Agree with this. The distinction that matters to California EDD is whether you're performing services and receiving compensation - the LLC type is more of a tax/legal question than an eligibility question.

got it thanks. I was overthinking the wrong part of this apparently

This is reassuring to hear from someone who actually did it. Did you tell them upfront that you were forming an LLC or did you just wait and see?

I actually did call and mention it ahead of time. The agent I spoke with basically said the same thing everyone here is saying - forming is fine, earning money requires reporting. They made a note on my account which I felt better about.

Making a note on your account is smart. That way if anything ever comes up in review there's a record that you disclosed your situation proactively.

Yes, job search requirements in California still apply unless you have an approved exemption like standby status. California EDD requires you to make a set number of job search contacts each week AND register with CalJOBS. Starting a business doesn't exempt you from this unless you specifically apply for and receive a self-employment assistance exception. It's one of the more frustrating aspects of the system for people in your situation.

so you could literally be working on your business every day AND still have to apply for jobs just to keep your benefits. thats exhausting

Correct, and this is actually where people get tripped up most often. They focus so much on the income reporting question that they forget to maintain their job search activities. Missing your job search requirements can trigger a disqualification just as easily as unreported income.

I did not think about the job search piece at all. So I'd need to keep applying to regular jobs even while building the LLC? That actually feels very doable honestly, I was just worried about the income/disqualification piece.

Good memory on this. The California Self-Employment Assistance Program has had limited availability over the years. It's worth asking about when you do call California EDD but I wouldn't count on it being available - just something to ask about as a bonus question.

Yeah I don't want to get anyone's hopes up since I'm not sure of its current status. Just wanted to flag it as a thing that exists or has existed.

I'll definitely ask about this when I call. Adding it to my list of questions.

I've seen adjudication cases where people were disqualified when California EDD determined they were 'operating' a business - usually because they were actively pitching clients, signing contracts, or had their business listed as open and available for work even without actual income. The formation itself wasn't the trigger in those cases - the business activity was. So the line is real and California EDD does enforce it.

I know someone who got flagged for adjudication because they had a business website live and were actively posting about taking clients on social media, even though they hadn't been paid yet. California EDD considered them operating a business. They ended up appealing and it was resolved but it was stressful and took weeks.

damn okay so the 'ready for business' type marketing stuff can get you in trouble even without income. good to know

I just watched the demo video. Going to try this this week because I really need to talk to someone before I do anything with the LLC.

Same, bookmarking this. The phone situation with California EDD is just completely broken.

does claimyr work for any california edd question or only specific things

Any question that requires talking to a California EDD agent. Self-employment, adjudication status, anything where you need a real person to look at your specific claim.

This is really smart and honestly something I would never have thought to do. Starting a log right now before I even file the LLC paperwork.

The documentation thing is huge. California EDD adjudication can happen months after the fact and you need to be able to reconstruct what you were doing on any given week.

Also keep records of your job search activities separately. I know it's a lot of paperwork but it's all worth it if you ever get audited or hit with an overpayment notice.

Great question and the answer is: you report income the week you RECEIVE it, not when you invoice or when the work was performed. This is called cash basis reporting and California EDD uses this approach for self-employment income. So if you invoice a client in week 3 but don't receive payment until week 6, you report it in week 6. Keep records of both the invoice date and the payment received date.

oh okay that actually makes sense. I was worried about having to report money I didn't have yet

Just to add nuance - if you're on a payment plan or receive checks in installments, each payment gets reported in the week it's received. California EDD doesn't care about your accounting method, just when money hits your hand or account.

Take a breath. Based on everything in this thread, simply forming the LLC without doing billable work shouldn't have affected your claim. The question is whether you've done anything that California EDD would consider 'operating' the business. Have you taken on any clients, signed any contracts, or been actively marketing for paid work?

No none of that. Literally just filed the paperwork and paid the California Secretary of State fee. I haven't even set up a bank account for it yet.

You're almost certainly fine. Document your timeline, make sure your job search activities are current, and if you want extra peace of mind call California EDD to inform them proactively. It's better to disclose than to not and have it come up later.

okay feeling a little better. Going to call them this week to just let them know and get it on record.

Lol that $800 franchise tax board fee hurts when you're on UI. It's a business expense so you can deduct it on your taxes eventually, but no you can't offset it against your UI benefits in any way. It's just a cost of forming a California LLC. Some people wait until they have revenue before forming specifically to avoid that fee.

yeah the timing of that fee versus when you start earning anything is rough. might actually affect when it makes sense to form vs wait

This is a whole other consideration I hadn't thought about. So the $800 is due in the first year regardless of whether you made any money?

Yes, it's due within the first few months of forming and then every year after. California is not forgiving about this regardless of your income level. Factor it into your decision on timing.

Partially right and partially wrong. If you were SOLELY self-employed and never had traditional W-2 employment, you generally wouldn't qualify for regular California UI because UI is funded by employer payroll taxes. But if you were laid off from a regular W-2 job and THEN become self-employed, your eligibility is based on your previous W-2 employment. The self-employment going forward just affects ongoing eligibility through the reporting requirements we've been discussing.

Oh okay so since OP had a regular job before getting laid off they're fine on that front

Exactly. The base period wages from the W-2 job are what established the claim. The self-employment question is about maintaining eligibility going forward, not about whether the claim was valid to begin with.

The inconsistency between agents is SO real. I got told three different things about how to report partial self-employment income on weekly certifications. It's one of the reasons having a written record of what an agent told you is so important.

Exactly - I started writing down the date, time, and agent ID every time I called. Some agents are much more knowledgeable than others about self-employment situations.

This is making me more determined to get a really clear definitive answer before I do anything. Not leaving it up to chance.

This is the success story I needed to read. Thank you for this.

Really glad I found this thread. Going to try Claimyr to get my situation sorted out properly.

Good outcome! And you're right that closing out the claim proactively when you no longer need it is the right move. Some people try to keep collecting past when they should and that's where overpayment issues come from.

Good to know the appeals process is a real option and not just theoretical. Adding this to my mental backup plan.

Agreed. The appeals process at California EDD is underused because people don't realize how often the initial determination can be overturned with proper documentation and explanation. Always appeal within the 30-day window if you disagree with a decision.

this whole thread should be pinned somewhere honestly