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Does Your Side-Project Need an LLC?

The short answer is “no,” you do not actually need to register your side business as an LLC. That being said, while it may not be necessary for you to form an LLC, there are many potential benefits to doing so. Forming an LLC rarely has negative effects, but before forming one, you need to figure out what direction your business is going.

Small businesses have the option of being organized as limited liability companies, or LLCs. An LLC offers most of the same liability protection that a corporation offers, with the added benefit of a less rigid structure and fewer administrative requirements.

But what's right for one business isn't necessarily right for another. Some businesses are fine with a sole proprietorship, while others will benefit by incorporating. Here are some basics to help you understand which structure makes sense for you.

What Will an LLC Do for Me?

By forming an LLC, you are creating a separate legal entity that can own money and property, open a bank account, make legally binding agreements, and file lawsuits or be sued.

Because of this, you are protected from your business's creditors. Your family home, personal bank account, and other individual assets are safe, no matter what happens to the business.

By contrast, if you operate a sole proprietorship or general partnership, you and the business are legally inseparable, and everything that you own is potentially at risk.

LLCs have these other advantages as well:

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Here's What an LLC Can't Do

Let’s look at some things an LLC can't do. Unlike a corporation, an LLC can't issue stock. This complicates matters if you want to take on investors, who often prefer corporations over LLCs.

You are still responsible for your actions in an LLC. If a member of the general public is harmed by your negligence or wrongdoing, they can sue you personally. If you have personally guaranteed a contract or loan, you are responsible for repaying it even if the LLC cannot cover it. And most states don't protect the business itself from lawsuits, or from loss due to fire, flood, or other disasters—even if you have insurance.

As you can see, these limitations mean that an LLC should never be your very first line of defense against inevitable business issues. Insurance will help to protect you and your LLC against these kinds of unexpected events. As a second defense, an LLC adds helps then protect your personal from potential litigation or disputes with creditors.

Who Benefits the Most from an LLC?

Your business is most likely to benefit from being an LLC if either of these is true:

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How to Choose if an LLC is Right for You?

Forming a business entity like an LLC or corporation is almost never a bad idea, but it isn't always an absolute necessity for solo business owners.

To decide whether you need an LLC, consider:

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If you're trying to limit your business liability, make sure you have adequate business insurance. If you have business partners, employees, or significant risks, an LLC can provide another important layer of protection.

Form Your LLC With BetterLegal

BetterLegal has made it easy for you to create an LLC! BetterLegal offers all of the upfront services needed to form an LLC at the low cost of $299, plus your state’s filing fee. Included with that fee is filing type, an Employer Identification Number (Tax ID), Operating Agreement, Banking Resolution and Other Helpful Docs, Website, Business Checking, Tax Analysis, Insurance Evaluation, Payroll, Benefits, and HR platform. Let us make forming an LLC an easy and economical business decision!

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