Like everyone else, you’ve been looking for something to do in your spare time. You thought of a hobby that might also bring in a little extra cash. Your success, however, took you by surprise. What started out as nothing more than an idea has blossomed into a thriving home-based business.

Is it time to change your business structure from “sole proprietor” to a limited-liability corporation (LLC)? Maybe. Here are some questions that you may want to ask yourself first:

  1. Would becoming an LLC give your business a little more credibility with potential clients? Depending on the nature of your business, potential clients may feel a bit leery about working with a sole proprietor. Even though adding the LLC after your business name may feel like a formality to you, it could give you a veneer of professionalism that makes it easier to gain new clients.
  2. Do your business services or products carry any risk of harm to your clients? For example, if you run a home bakery, could your cookies potentially cause an allergic reaction? Could your accounting services create a financial nightmare for someone if you make a mistake? Without the protection of an LLC, you could be personally exposed to liability if there’s a problem.
  3. Do you have any personal assets that would be at risk if you were sued by a client or customer? Maybe you’re operating out of a rental and you don’t even have a car to your name, but most people have wages that can be garnished and assets that can be seized if they lose a lawsuit. Operating under an LLC protects you against those kinds of losses.

Setting up an LLC isn’t difficult, nor does it take very long. It is wise, however, to obtain assistance from an attorney with experience handling the process.