Starting a side hustle is a great way to diversify your income and increase your monthly income on your terms. It lets you turn your passions into a business without forcing you to give up your 9–5. But with any business, protecting your personal finances from your business liabilities should always be a priority, even if you’re not hustling full time. A limited liability company (LLC) can help protect you while your side hustle flourishes.
Key points
- Forming a side hustle LLC protects your personal assets by creating a separate legal entity for your business.
- While not always necessary from day one, formalizing your business with an LLC can provide crucial protection and a professional framework as your venture grows.
- An LLC can significantly enhance your side hustle's professionalism and make it easier to build business credit.
- It's essential to weigh the initial and ongoing fees against the peace of mind and growth opportunities an LLC provides for your specific side hustle.
Why should you create an LLC for a side hustle?
When you start your side hustle and run it as a sole proprietor, you’re personally responsible for any liabilities that you incur while hustling. For instance, if a client or customer sues you or you default on a loan, then your personal assets (like your bank accounts, home, car, and other valuables) can be used to settle what you owe.
When you create an LLC for your side hustle, you turn your business into its own legally separate entity with its own finances, liabilities, and responsibilities. In most cases, the LLC shields your personal assets from the court if a customer sues you, and keeps creditors from being able to use your personal assets to settle your debts if you default on a business loan.
How to tell if it’s time to turn your side hustle into an LLC
Figuring out if it’s time to turn your side hustle into an LLC can be tough, especially if you’re only working on your business a few hours each week. Here are a few signs it’s time to formalize your business by creating an LLC and forming a separate legal entity.
- You’re earning recurring business income. If your side hustle earns income each month, forming an LLC could be a good idea.
- You want to turn your side hustle into a bigger business. If your side hustle is successful and you want to turn it into a bigger business, forming an LLC could give you additional protection and may inspire greater confidence in your brand.
- You need to hire employees. When you form an LLC, you can apply for an employer identification number (EIN), which is required if you want to hire employees.
- You’re ready to expand. If you’re looking to expand your business into a dedicated space or take on more work, forming an LLC gives you the framework you need to grow over time.
You’re free to form an LLC at any time, even if your side hustle is brand new. And doing so could give you the protection and peace of mind you need so you can focus on building a sustainable business.
How to start your first LLC for a side hustle
Though every business is unique, the steps you’ll need to take to create an LLC for your side hustle are largely the same regardless of the type of business you run.
Step 1: Name your business
You’ll need to choose a name for your LLC before you can register it with the state. The name you choose can be creative or simple—it’s up to you. However, the name should be unique and different from the names of other businesses in your area.
If you’re not sure where to start, consider using a name generator for inspiration. You'll also want to perform a business entity search with your state to ensure that your desired name isn't taken.
Step 2: Pick your registered agent
Your registered agent is a person whom you appoint to receive legal documents and other forms of communication on behalf of your business during business hours. It’s possible to act as your own registered agent, but keep in mind that your business’ address will become public information. If you’re running a side hustle out of your home, paying a registered agent will give you more privacy.
Step 3: File your articles of organization
Your articles of organization are some of the most important LLC formation documents you’ll create. These act as your formal registration with the state. They should include information about your LLC, including:
- Your LLC’s name
- The physical address for your side hustle
- The purpose of your LLC
- Your LLC’s business structure
- The name and contact information of your registered agent
- The names of any members and managers of the LLC, even if it’s just you
You’ll typically file your articles of organization with the Secretary of State’s office in your state. You should be able to do this online or by mail. You’ll also need to pay a registration fee, which varies by state.
Step 4: Draft your operating agreement
Your operating agreement outlines how you’ll run and manage your own business. While many states don’t require you to file your operating agreement when forming your LLC, it’s still worth creating before you get things up and running.
Try to be detailed here. Provide information about each person’s role and responsibilities within the LLC, how you’ll manage the business, your business structure, your business’s purpose and goals, and any other relevant information.
You can use this template as a starting point, but be sure to customize your agreement to meet your business’s needs.
Step 5: Get an employer identification number (EIN)
When you form your side hustle LLC, you’ll want to get an employer identification number from the Internal Revenue Service (IRS). This number helps the IRS identify your business when you file for income tax purposes each year. Think of the EIN as being like your Social Security number is your personal tax ID. You can request an EIN on the IRS’ website for free. Although you don’t necessarily need an EIN to meet federal tax regulations, you will need one if you decide to hire employees.
It’s also a good idea to open a business bank account and apply for business credit cards. This helps you separate your personal finances from your business finances, which may reduce your risk of getting audited at tax time. You can open business bank accounts at local and national banks as well as local credit unions.
Step 6: Apply for necessary permits and business licenses
Depending on your state’s rules and the type of business you’re running, you may need to apply for permits and business licenses. Check with your county to see if any specific permits and licenses are required in your area. LegalZoom also offers a comprehensive business license search with annual renewal reminders.
Building a business is enough work as it is. We'll help you start your LLC with confidence.
How much does it cost to form an LLC?
The exact amount you’ll pay when forming an LLC for your small business or side hustle depends on where you live and what services you opt-in for. Here’s a quick overview of the costs you can expect when you form your LLC.
- State filing fees. You’ll pay state filing fees when you submit your articles of organization. This can range from $50 to $100, depending on the state.
- Registered agent services. Registered agent fees cost business owners an average of $50 to $300, depending on the agent and the types of services they provide.
- Business licenses. Business license costs vary by location, the size of your business, and the number of employees you have.
- Business insurance. Buying business insurance after starting a side hustle LLC is a great way to protect your small business from liability and damage. Policies can range in price, but cost an average of $57 per month.
The pros and cons of starting an LLC for a side hustle
Here are some of the pros and cons of starting an LLC for your side hustle.
The pros of creating an LLC
Forming a limited liability company for your side hustle isn’t legally required, but it can be a good choice, especially if you want to turn your side hustle into a thriving business. Here are some of the benefits you may see by forming an LLC.
- Personal liability protection. When you form an LLC, you’ll get liability protection for your personal assets. If a customer sues you or you default on a loan, your personal assets typically can’t be used to settle what you owe.
- Your business looks more professional. Potential customers often want to feel like the business they’re supporting is professional and likely to stick around for a long time. By forming an LLC, you’ll make your side hustle look like a professional business, inspiring confidence in your customers and helping you convert potential customers into recurring clients down the line.
- You choose how to be taxed. LLC owners can choose to be taxed as an S corporation, sole proprietorship, C corporation, or partnership, depending on how you structure your side hustle. This could help you save money when paying state and federal tax amounts.
The cons of creating an LLC
Though starting a limited liability company can be a good choice for many people with a side hustle, it’s not perfect for everyone. Here are some of the potential downsides you may see.
- May not benefit all side hustles. Forming an LLC isn’t legally necessary, and if you run a low-risk side hustle, it may not be worth the expense.
- May not protect multiple side hustles under one formation. You can form an LLC for multiple side hustles, but doing so could weaken the amount of personal liability protection you get.
- More difficult tax filing processes. Depending on how you’ve structured your LLC, filing for taxes could be more difficult than it is as a sole proprietor without an LLC.
How LegalZoom can help with your side hustle LLC
LegalZoom’s LLC formation services make it easy to start an LLC for your side hustle so you can focus on growing your business. Our plans start as low as $0 plus LLC filing fees, making it easy and affordable to get the personal liability protection you need.
Not confident in your ability to fill out and submit the necessary paperwork on your own? Our attorney-guided Pro and Premium plans ensure that you get the help and advice you need without having to pay the high hourly rate you’d find at a stand-alone law firm.
When you form your LLC with us, you’ll also score a special deal with our web hosting partner, Wix, to help you build your online presence and improve your business’ reach.
Side hustle LLC FAQs
Is owning an LLC worth it when I have a side hustle?
Forming a limited liability company could be worthwhile if you have a side hustle that earns regular business income or one you’re hoping to grow your LLC profits in the future. Your LLC reduces your personal liability with your business and helps you separate your personal finances from your business to better protect your personal assets.
Do I need to create an LLC for a side hustle?
Not necessarily. You’re not legally required to form an LLC when you start a side hustle. If your side hustle is small or in a low-risk industry, you may be fine running your business as a sole proprietorship. However, if you want to grow in the future, forming an LLC early on could make it easier to attract new business down the line.
Can I start a side hustle LLC before earning any money?
Yes. You can start a limited liability company before your side hustle is earning regular business income, even as soon as you think of starting a new business. However, if you create an LLC before earning money, you may still need to file certain state and federal tax forms. Ask a tax adviser for guidance to learn more.
Will turning my side hustle into a limited liability company help me grow my business?
Potentially. Forming an LLC can make customers more confident in supporting your company, and may encourage them to choose your business over others without an LLC. It also gives you a framework to hire employees if needed.
Do I need to form an LLC in each state I operate in?
Typically, yes. If you’re only working out of one state, you can file what’s called a domestic LLC with that state. But if you choose to operate out of more than one state, you’ll need to file for a foreign LLC in each state you’re operating in. Keep in mind that you’ll need to pay filing fees for each state.