Have a side-hustle or starting a new company? Make sure your personal assets are protected.
Protect Yourself from Mistakes, Accidents, and Lawsuits
Many people have a side-hustle. Whether it's selling things on Etsy, a dog walking service, or business consulting, there is the potential for mistakes, accidents and lawsuits.
If you do not legally set-up your business, you're running it as a sole proprietorship and your personal assets are at risk in the event you are sued. To limit your personal liability, you should create a limited liability company or LLC. Some people will use a corporate structure called an S-corporation, but you must meet certain corporate formalities that are not required by an LLC.
With an LLC, if someone decides to sue your company, the amount of their recovery is limited to the assets of the company and/or the policy limits of any insurance you may have. They will be unable to go after your personal assets, such as your home or personal bank accounts.
The Process for Setting Up an LLC
The process for establishing an LLC is reasonably straight forward:
Obtain an employer identification number from the Internal Revenue Service.
Register the company with the proper government offices, which typically include both the business agency and a tax agency.
Obtain a business license and a special permit if you plan to operate the business from your home.
Prepare periodic reports about your company to the government business agency.
You may also wish to have an operating agreement, separate bank accounts, general and/or professional liability insurance and repository for your company records.