Maintaining a "side hustle" in addition to a full-time job has become commonplace these days. A side hustle is not merely a second job or participating in the gig economy. Chris Guillebeau, author of Side Hustle and founder of Side Hustle School, says it is “an asset that works for,” and provides you with greater financial stability. In other words, it is not a job someone can quickly take away from.
According to a Bankrate survey, 37 percent of Americans have a side hustle, and there appear to be myriad reasons for the increase in additional employment. People may choose to use their side hustle’s profits as disposable income, put it toward traditional monthly expenses, or use it to pay down debt and build savings.
Whether you are developing an idea or already running a side hustle, you should seriously consider contacting a local business attorney to make sure things run smoothly—and keep you from getting into trouble. Here are nine common scenarios in which a lawyer can help:
1. Inform you of the related rights, duties, and risks.
If you want to start or grow a side business, you need to be clear on the laws regarding the products or services you provide. If you form a business entity, a lawyer can explain your rights as a sole proprietor; your legal duties regarding what you sell (including taxes to pay); and the legal risks. One significant legal risk is your personal liability should something go wrong: What happens if you make soaps, lotions, and other body products, and a customer has a serious negative reaction? Whether or not you feel you are at fault, you could be sued. You need to talk with a lawyer about the risks you face during a side hustle and how to protect against them.
2. Form a separate legal entity.
“If you’re starting from scratch, you need to determine what kind of an entity you want,” says Sam Braunstein, a business organizations attorney with Braunstein and Todisco, PC. “Are you going to do it yourself, in your own name, which could risk your home? Or do you want to set up a corporation or a limited liability company?”
The last thing you want is for your side hustle to damage your financial future. You can typically make extra cash without needing to create a corporation or limited liability company (LLC). However, forming a separate legal entity may be the best way to protect your personal finances. If you fail to keep your business and personal finances separate and you suffer a significant financial setback, you could damage your personal credit score.
3. Obtain business licenses and permits.
Depending on how and where you intend to make a little money, you may need specific types of licenses or permits from your city, county, or state—or a professional association. Homebrewing is a good example. States and municipalities have alcohol laws that dictate when you can serve and sell beer to the public. Before you expand your homebrew efforts beyond friends and family, talk to a lawyer about obtaining appropriate local and state licenses.
4. Create a business plan.
As confident as you may be in your idea for a new product or service, the reality can be tougher than expected. You should be prepared for slow sales at the beginning—or no sales at all. “We usually recommend that a new business has at least 90 days’ working capital,” Braunstein says. “That means you sit down, you make a budget, and so you figure what your expenses are going to be for the first 90 days, and you have to assume that you’re not going to have any income during that 90-day period.”
An attorney can help you draft a plan to budget your expenses so they don’t spiral out of control. If this business isn’t your main source of income, 90 days’ capital might not look like much. But being conservative with your expectations, and generous with your safety net, will still give you a greater shot at success.
5. Review contracts.
Many business transactions are governed by contracts. If you work with other businesses or independent contractors, don’t be surprised when they hand you an agreement and expect you to sign. It may be standard, but have your attorney look it over first. You should know exactly what you are agreeing to.
6. Draft contracts.
You may need various agreements for customers, vendors, employees, independent contractors, and more. You may be very tempted to save time and money with free or low-priced online contracts. However, you should always ask yourself three questions before you use a pre-made contract. Do you know what everything in the agreement means? Do you know if each provision is enforceable in your state? Do you know if the contact is missing anything important? If you cannot confidently answer those questions, you should be working with an attorney for your contracts.
7. Protect your intellectual property.
Through the creation and development of your side hustle, you may come up with ideas you are entitled to copyright or trademark. If you can, you should. When you don’t legally protect your intellectual property, you may not have the right to sue for damages or enforce your ownership if someone steals it. Protecting your IP is particularly important if you wish to expand your business into something full time or that could be sold to a larger company in the future.
8. Defend you in a lawsuit.
Some side hustles are low-risk endeavors. If you sell cross-stich on Etsy, you are unlikely to run into too many issues other than the occasional disgruntled customer. However, other side gigs can be far riskier, like making personal or edible products, or offering a personal service like massage. More is likely to go wrong in these types of endeavors, and a worst-case scenario is that you and/or the business get sued.
“Most businesses get into trouble,” Braunstein warns. Having an attorney that is already familiar with you and your business can be helpful.
9. Bring a lawsuit on your behalf.
If you become involved in a business dispute, you may be the one who needs to file a claim in court against another individual or business. You may have a breach-of-contract issue–when a supplier does not deliver as promised. You may have a customer who refuses to pay you hundreds or thousands of dollars. You might have another person or business violating your copyright. When this happens, it’s best to already have an established relationship with a local lawyer. An attorney can help you resolve the issue, and when necessary, will handle filing a lawsuit on your behalf.