How to Create Your First LLC 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 management 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 most 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.