Did you know that more than HALF of Americans have a side hustle? Whether it’s to supplement their primary source of income or simply to enjoy a hobby of theirs, side hustles are a prominent part of today’s society.

But what often happens with side hustles or hobbies is that people realize it can be an actual THING.

In fact, some of the most well known businesses that you and I know and love today actually started as hobbies, including:

• Apple – our beloved cell phone and computer company started in Steve Jobs’ garage as a small project between him and Steve Wozniak. What began as a hobby of building computers for fun turned into one of the most successful tech companies in the world.
• Etsy – arguably the most well known hobbyist platform actually began as a place for the co-founders to sell their own handcrafted items, which ultimately turned into a massive marketplace for artisans and hobbyists alike.
• Spanx – Sara Blakely started Spanx as a side hustle while selling fax machines door-to-door. Her desire to create more comfortable undergarments for women led to her designing and selling her first prototypes from home. Today, Spanx is a billion-dollar business
• Under Armour – Kevin Plank’s hobby of designing athletic wear that performed better than traditional cotton clothing started in his grandmother’s basement and eventually grew into the well-known sports apparel company that we know today
• Yankee Candle – Mike Kittredge started Yankee Candle in his childhood kitchen when he made a homemade candle as a gift for his mother. What started as a hobby grew into a booming business, eventually becoming one of the largest candle manufacturers in the U.S.

All of these are booming businesses that you’re likely very familiar with and the one thing they all have in common is that they didn’t start as a business idea. They started as a side hustle or hobby that morphed into something incredibly successful.

And the same can happen for YOU!

But as your friend in the legal world, I want to remind you that turning your side hustle or hobby into a legitimate business requires more than just passion…

It requires taking the proper legal steps and I promise those steps don’t have to be as daunting or scary as they may seem. 

In this blog post, I’m sharing the EXACT steps to take so you can turn your hobby or side hustle into a fully functioning business with ease!

10 Steps To Turning Your Side Hustle or Hobby Into a Legit Business

1. Determine If Your Hobby is Actually a Business

First things first, before you dive into the legal aspects, you need to determine whether your hobby or side hustle actually qualifies as a business.

The IRS generally considers an activity to be a business if it’s profit-driven and you work at it regularly and continuously. If you’re consistently earning income and have plans for growth, that’s a surefire sign that it’s time to shift your mindset from hobbyist to business owner.

To accurately determine this, ask yourself:

• Are you earning money from your hobby or side hustle?
• Do you intend to make a profit?
• Are you reinvesting profits to improve the quality or scale of your operations?

If you answered yes to these questions, it’s time to move forward with legalizing your business.

2. Choose Your Business Structure 

Once you’ve determined that YES, your hobby or side hustle should indeed be a legit business, it’s time to choose your business structure.

Selecting the right business structure is one of the most important legal decisions you’ll make, as this decision impacts your taxes, liability, and the level of paperwork required.

The 4 most common structures are:

• Sole Proprietorship – this is the simplest structure and works well for solo entrepreneurs. It doesn’t require formal registration, but you are personally liable for any debts or lawsuits.
• Partnership – if you’re going into business with someone else, a partnership might be the best option. In this setup, both parties share responsibilities and profits, but both are also personally liable.
• Limited Liability Company (LLC) – an LLC offers more protection by separating your personal assets from your business liabilities. It’s a popular choice for small businesses due to its simplicity and flexibility. 
• Corporation – if you’re planning to grow significantly or attract investors, a corporation might be the best fit. Corporations offer strong liability protection, but they come with more formalities, higher fees, and complex tax requirements.

If you aren’t sure which structure is best for you, it’s wise to consult with a business attorney or accountant so you can make the right decision!

3. Register Your Business

Once you’ve selected a business structure, it’s time to register your business name. Depending on your location and the type of business you’re operating, this may involve filing with your local county clerk or registering with your secretary of state.

💡My best legal pro tip for you here? Don’t fall for the trick that you need to use some sort of online agency for this. That is one of the BIGGEST mistakes that I see new business owners make. 

It’s truly not necessary and can end up taking more time and money in the long run!

All you really need to do here is:

✔️Pick a Business Name – make sure that you choose a unique name that reflects your brand and isn’t already in use by another business. You can check business name availability through your state’s business registration database!

✔️Register with State Agencies – if you form an LLC or corporation, you’ll need to file formation documents with your state, such as Articles of Organization or Incorporation.

4. Obtain an Employer Identification Number (EIN)

An EIN sounds like one of those scary, legal, businessy things, but it’s actually really simple. This is like a social security number for your business and is issued by the IRS for tax purposes.

Even if you don’t have employees, obtaining an EIN is a smart move because it allows you to open a business bank account, file business taxes, and streamline the hiring process if you decide to expand in the future.

You can apply for an EIN here!

5. Open a Business Bank Account

I am BEGGING you to separate your personal and business finances! If you ignore anything in this blog post, PLEASE don’t let it be this. 

A business bank account not only helps you track your business income and expenses more efficiently, but it also protects your personal assets in case of legal disputes.

To open a business bank account, you’ll need:

• Your EIN (or social security number for sole proprietors)
• Business formation documents (for LLCs and corporations)
• Personal identification (driver’s license, passport)
• A resolution of authority (if someone other than the owner will be handling the account)

6. Obtain the Necessary Licenses and Permits

Depending on your business type and location, you may need to obtain licenses or permits to legally operate.

Common licenses include:

• General Business License – many cities or counties require a general business license to operate legally
• Sales Tax Permit – if you’re selling goods, you’ll need to collect sales tax, which requires a sales tax permit from your state’s revenue department
• Professional Licenses – some industries, like cosmetology, food services, and real estate, require specific professional licenses to operate legally

7. Get Business Insurance

This step can sometimes be optional, but generally speaking, business insurance protects your company from unforeseen risks, such as lawsuits, property damage, or accidents.

Even if your business is home-based or low-risk, it’s essential to have coverage.

Common types of business insurance to consider include:

• General Liability Insurance – covers legal claims against your business, such as accidents or injuries
• Professional Liability Insurance – also known as Errors and Omissions (E&O) insurance, it protects you from lawsuits related to professional services
• Product Liability Insurance – if you manufacture or sell products, this coverage protects you from claims of product defects or harm

If you aren’t sure what type of insurance you need (or if you need any at all), it’s best to consult with your insurance provider to determine what type of coverage best suits your business!

8. Understand Tax Obligations

As a business owner, you can’t skip the businessy things… like paying taxes! While it can definitely be one of those headaches that’s hard or confusing to figure out, it’s important that you know what’s required of you!

Here’s a few tax related things to keep in mind:

• Self-Employment Taxes – sole proprietors and LLCs typically pay self-employment taxes on profits
• Income Taxes – you’ll need to file taxes based on your business structure, whether that’s through personal income taxes (for sole proprietors) or corporate taxes
• Sales Tax – if you’re selling products or taxable services, you must collect and remit sales tax
• Estimated Taxes – many business owners are required to pay quarterly estimated taxes to avoid penalties for underpayment at the end of the year

To help release some of the overwhelm or stress that can come with tackling your taxes, consider working with a professional to ensure that you’re staying compliant and taking advantage of all available deductions.

9. Protect Your Intellectual Property (IP)

Becoming a real business is a BIG deal, which means you want to make sure that you’re taking the necessary steps to protect your intellectual property at all costs. 

The thing is, in the business world, there are some real copycats out there. And as much as it’s annoying to think about, it’s important that you take the appropriate actions ahead of time to protect yourself in the event that someone does try to steal your work in the future. 

Intellectual property protection ensures that your unique ideas, inventions, and creations are legally yours. Without proper protection, others can steal or copy your work without permission, diminishing the value of what you’ve built.

Protecting your IP can include trademarking your business name or logo and copyrighting ALL of your content!

10. Implement Professional Contracts

Lastly, implementing professional contracts is a critical step in turning your hobby into a legitimate business. Contracts clearly outline the terms and conditions of your business relationships, protecting you from misunderstandings and potential legal disputes.

Whether you’re working with clients, suppliers, or business partners, a well-drafted contract ensures that everyone involved understands their responsibilities and the scope of the work. 

Professional contracts also cover crucial elements like payment terms, deadlines, intellectual property rights, and liability, safeguarding your business and setting a professional tone from the start.

And as always, I wouldn’t expect you to DIY something so important, which is why the TBL Contract Template Shop exists. 😉

Overall, turning your hobby into a legitimate business is an exciting journey that requires thoughtful planning and attention to legal details.

By following these 10  steps, you’ll set your business up for long-term success!

As you set out on the amazing journey of entrepreneurship, here’s a few other resources that might be helpful along the way:

⭐️ 5 Mistakes New Businesses Make and How To Avoid Them

⭐️ 7 Essential Contracts for New Businesses

⭐️ Top 3 Mistakes Business Owners Make When Forming Their LLC

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If we haven’t had the chance to *virtually* meet yet, hey I’m Amber – not a regular lawyer, but a cool lawyer that helps online business owners sell without getting sued. 

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