Yes, a government employee can own a business. Federal ethics rules do not bar outside ownership, but they control tightly how the business operates alongside your official duties: you cannot work on any government matter that could financially benefit your business, you cannot use your position or government resources to help it, and depending on your agency and pay grade you may need written approval before you start.
The Core Rule: Your Business Cannot Touch Your Government Work
The main federal conflict of interest statute bars you from participating “personally and substantially” in any government matter where you, your spouse, minor child, or business partner has a financial stake.1Office of the Law Revision Counsel. 18 USC 208 – Acts Affecting a Personal Financial Interest Personal and substantial involvement means exercising judgment through a decision, recommendation, investigation, or advice. Signing off on a contract award counts. Recommending a vendor in a meeting counts. Passing a document along without exercising judgment usually does not.
A second kind of conflict is about appearances rather than dollars. If your business ties could cause a reasonable person to question your objectivity, you have an impartiality problem even without a direct financial stake. Federal regulations list “covered relationships” that trigger this concern, including any business or financial relationship beyond a routine consumer transaction, and any organization where you actively serve as an official or spokesperson.2eCFR. 5 CFR 2635.502 – Personal and Business Relationships
The standard fix is recusal. You notify your supervisor or ethics official, step aside from the specific matter, and keep doing the rest of your job. No formal filing is required in most cases, but putting your recusal in writing protects you if questions come up later.3eCFR. 5 CFR Part 2635 Subpart D – Conflicting Financial Interests If the conflict touches too much of your role for recusal to be workable, your appointing official can issue a written waiver on a finding that your financial interest is not substantial enough to compromise your work.4Office of the Law Revision Counsel. 18 USC 208 – Acts Affecting a Personal Financial Interest
What You Cannot Do While Running the Business
Even with careful recusal, some activities are flatly off-limits.
- Contract with your own agency. You cannot sell goods or services to the agency you work for, and you cannot use your position to steer business to anyone else for your benefit. The bar on using public office for private gain covers indirect benefits routed through friends, relatives, or business associates.5eCFR. 5 CFR 2635.702 – Use of Public Office for Private Gain
- Use nonpublic information. Insider knowledge about upcoming policy changes, contract awards, or enforcement actions cannot inform your business decisions.6eCFR. 5 CFR 2635.703 – Use of Nonpublic Information
- Use government property or time. Government computers, phones, vehicles, and office supplies are for government work. Running your business on government equipment or during work hours violates the duty to conserve government property.7eCFR. 5 CFR 2635.704 – Use of Government Property
- Represent your business before the federal government. You cannot act as an agent or attorney for your business, or for anyone else, before a federal court, agency, or commission on a matter where the United States is a party or has a substantial interest.8Office of the Law Revision Counsel. 18 USC 205 – Activities of Officers and Employees in Claims Against and Other Matters Affecting the Government
- Use your title to promote the business. Your government title, position, or authority cannot appear in marketing, endorsements, websites, or social media promoting your business.5eCFR. 5 CFR 2635.702 – Use of Public Office for Private Gain
One rule catches business owners off guard: the salary supplementation ban. No outside party can pay you, directly or indirectly, as compensation for your government services. If a business partner, client, or outside entity pays you in a way that effectively supplements your federal salary, both you and the payer face criminal penalties.9Office of the Law Revision Counsel. 18 USC 209 – Salary of Government Officials and Employees Payable Only by United States Earning genuine income from an independent business is fine; taking payments that are really compensation for what you do at your government job is not.
Do You Need Approval Before Starting?
Federal regulations let each agency require written approval before an employee starts a business or takes on outside employment, and most agencies use that authority.10eCFR. 5 CFR 2635.803 – Prior Approval for Outside Employment and Activities The usual process is submitting a written description of your planned business to your agency ethics official, who reviews it for conflicts with your duties. Approval is not one-and-done. If your job duties change, your business changes, or new conflicts emerge, you are expected to raise it again. The practical move is to talk to your ethics official before you spend money on an LLC filing or business license.
Financial Disclosure
Many federal employees have to disclose their financial interests, and owning a business will appear on those reports. Senior positions, presidential appointees, administrative law judges, and certain military officers file a public financial disclosure report covering income, assets, liabilities, and business interests.11Office of the Law Revision Counsel. 5 USC App 101 – Persons Required to File Employees at or below GS-15 whose work involves contracting, awarding grants, regulating outside entities, or auditing may still owe a confidential disclosure. The trigger is the nature of your responsibilities, not just your pay grade.
Outside Earned Income Cap
Senior noncareer officials and political appointees in positions above GS-15 face a hard cap on outside earned income: no more than 15% of the annual basic pay for Level II of the Executive Schedule.12Office of the Law Revision Counsel. 5 USC App 501 – Outside Earned Income Limitation For 2026, that limit is $33,855.13U.S. Senate Select Committee on Ethics. Financial Thresholds and Limits The cap covers salary, fees, and commissions from your business. Investment returns and rental income generally do not count. Career employees below the senior threshold have no statutory dollar cap on outside income, though agencies can set their own.
Political Activity and Your Business
The Hatch Act restricts partisan political activity by federal employees, and those restrictions follow you into your business. You cannot use your business to host a political fundraiser, sell tickets to one, or solicit political contributions through any channel, including business email accounts and social media.14Office of the Law Revision Counsel. 5 USC 7323 – Political Activity Authorized; Prohibitions Employees at the FBI, Secret Service, CIA, NSA, and several other intelligence and oversight agencies face tighter rules and cannot take an active part in political campaigns at all. If your business touches political activity, consulting, or advocacy, get guidance from your ethics office first.
If You Leave Government to Run the Business Full Time
Federal law imposes cooling-off periods that limit how you can use your former role to benefit your business after you leave.
- Lifetime bar on specific matters. You can never represent your business or anyone else before the federal government on a specific matter you personally worked on as an employee.15Office of the Law Revision Counsel. 18 USC 207 – Restrictions on Former Officers, Employees, and Elected Officials of the Executive and Legislative Branches
- Two-year bar. For two years after leaving, you cannot represent anyone before the government on matters that were pending under your official responsibility during your last year of service, even if you did not personally handle them.15Office of the Law Revision Counsel. 18 USC 207 – Restrictions on Former Officers, Employees, and Elected Officials of the Executive and Legislative Branches
- One-year procurement bar. If you served as a contracting officer, program manager, or decision-maker on a contract worth more than $10 million, you cannot accept compensation from that contractor for one year after leaving.
A business with no federal dealings sidesteps most of these issues. If your plan is to sell services back to the government, map the restrictions before you resign.
What It Costs to Get This Wrong
Penalties scale with the conduct. Administratively, an employee can face a reprimand, suspension without pay, or removal. On the civil side, the government can sue for the greater of $50,000 per violation or the compensation received from the prohibited activity. Criminal prosecution is reserved for the most serious cases: a non-willful violation is a misdemeanor carrying up to one year in prison, and a willful violation is a felony punishable by up to five years.16Office of the Law Revision Counsel. 18 USC 216 – Penalties and Injunctions Hatch Act violations carry their own scheme: removal, suspension, debarment from federal service for up to five years, a civil penalty of up to $1,000, or a combination.17Office of the Law Revision Counsel. 5 USC 7326 – Penalties
The business itself can also pay a price. A company owned by a government employee can be debarred from future federal contracts if the ethics violation involved fraud, bribery, or a conflict of interest in a procurement, and the misconduct of an individual officer or employee can be imputed to the business.18Acquisition.GOV. Subpart 9.4 – Debarment, Suspension, and Ineligibility
State and Local Government Employees
These federal rules do not govern state, county, or municipal employees. Every state has some form of ethics commission or oversight body, but structure, jurisdiction, and enforcement vary widely, and some jurisdictions are stricter than the federal framework while others are more permissive. If you work for a state or local government, contact your jurisdiction’s ethics office for the rules that actually apply to your position.