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Signs it’s time to start an LLC

Whether or not you consider yourself a small business owner, if you have not registered an LLC or corporation, you’re a sole proprietor as soon as you accept payment for a product you make or a service you provide. Being a sole proprietor is one of the riskiest ways to run a business. Fortunately, you can register an LLC once your side hustle becomes a regular thing, although the earlier you register the better. By registering your business as an LLC, you protect your personal assets from seizure to cover business debts or civil liabilities. An LLC also provides greater tax flexibility, while giving you the credibility to secure a loan or attract new customers.

So, whether you have an idea that you’re ready to launch or you’ve already been side hustling for a while, forming an LLC might be appropriate in the following situations:

  • You have concerns about business liability: Any accidents or other liabilities that arise from your side work as a sole proprietor attach to you, putting your personal assets at risk. If you work with customers in person or on-site, this is especially important to consider.
  • You hire employees: Employees expose you to a multitude of legal risks, but registering an LLC can help limit your liability. 
  • You take on a partner: A general partnership is potentially riskier than running a sole proprietorship since your partner can get both you and the business in serious trouble. By registering an LLC, you can help protect yourself and your business from a bad business partner.
  • You want to get ahead of the curve: If you have clear goals for your side hustle, you could save money on business expenses and taxes by registering your LLC.
  • You make $40,000 or more per year through your side hustle: If you are not concerned about liability, employees, or partners, you can still benefit from an LLC when you start making serious money. When your revenue hits a certain level, you may want to get serious about your side business’ finances. Mixing your side hustle income with your regular earnings can push you into a higher tax bracket.

LLC your side hustle

Registering an LLC is much easier and more affordable than most people assume. If you’re getting paid for a one-time gig and have no plans to turn it into a regular thing, then you probably don’t need to register a business. If you are going to be regularly working on the side, then an LLC can provide certain tax benefits and open the door to outside funding (many banks require registration as a condition for a business loan or account). Of course, limiting your liability provides protection for your personal assets in the event your business is sued or loses money can provide valuable peace of mind.

Since most side hustles start off as small ventures, with one or two projects or events, it’s common to register an LLC after getting off the ground. If you start to notice any of the signs discussed above, however, it may be time to start your LLC.

Ways Rocket Lawyer can help:

  1. Register your business.
    Protect your personal assets and set your side hustle up for success. With a Rocket Legal+ membership, your first business registration filing is FREE (excluding state fees).
  2. Talk to a Legal Pro.
    Everyone’s situation is unique, and sometimes it pays to talk to a Legal Pro before making big decisions. When you’re signing an important contract or finally setting up your LLC, the right advice at the right time can make all the difference.
  3. Get everything legal in one place.
    From connecting with a Legal Pro to taxes to making contracts to getting those contracts signed, Rocket Lawyer has you covered. Whether you’re just earning a little extra cash on the side or have big plans for your small venture, Rocket Lawyer can set you up with everything legal, all in one place.

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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