Hopefully someone out there can help me. I was employed for over 20 years with the same agency (in Chicago) which has recently closed its doors. I am due to collect unemployment beginning next week and am currently looking for another job. I am a graphic designer and would like to set up my own company. Can I continue to collect unemployment while setting up a company? And which would be best. S-Corp? C-Corp? LLC? I was leaning toward LLC but I'm not sure if this is the best avenue. As it is, I can barely scrape by on the unemployment, so I would hate to lose any of it as I slowly build clients. My industry is very competitive and clients are hard to come by so I know that while I may make $1,000 here and there it will take quite a while to become a steady income. I have received such conflicting advice from friends who own businesses so I am really hoping someone here can clear this up for me. Thank you so much!

Can I continue to collect unemployment while setting up a company?
I see no reason that this should preclude you from "setting up a company", but, it all depends if you are engaged in a trade or business for a profit purpose! Clearly, if you were going to have some business transactions, my thinking would be that you would have to declare to your State Unemployment office that you are receiving some income. They would then have to determine whether your eligibility to continue receive unemployment benefit should continue or not!
It would be best to contact your State Unemployment Office to determine precisely whether or not you would qualify to receive these benefits based on your income earned.

And which would be best. S-Corp? C-Corp? LLC?
Based on the limited information you have supplied, one would think that you a LLC would be more appropriate to meet your needs as it would offer the same legal protection as an S or a C corporation, but in addition, in some States the S or C Corporation's minimum taxes are substantially higher than the LLC's minimum taxes.

Since, you would be sensitive towards spending monies whilst unemployed, I would steer you towards forming an LLC entity.

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