Starting Your Side Gig the Right Way
Thinking about starting a side gig? You are part of a growing trend. Forbes[1], Business News Daily[2], Time[3], and Fast Company[4] have all published articles within the last year discussing success stories and tips for an ever-growing sector of workers who are starting businesses outside of their 9-to-5 job. This work as an independent contractor, while maintaining a full-time job, is referred to as a side gig. According to Staffing Industry Analysts (a staffing advisory firm)[5] nearly 7 in 10 workers surveyed said they perform work outside their primary work to supplement their income, aka a side gig. The appeal of a side gig lies in its flexibility. It can be an opportunity to try out a new idea, a way to make some extra money, a way to monetize a hobby, or all of the above.
Before you jump in and start having business cards printed up for your new side gig, there are a few legal matters to take care of first. Consider taking steps to protect yourself personally and lay the correct foundation for that business’ future. When your side gig starts to become successful, these first steps will help move that business from a side gig into your full-time passion. Keep in mind, though, that these bare bones protections will not be sufficient if your business scales up. At that point in time, consider making an appointment with an attorney.
Before considering a side gig, review your full-time employer’s employment contract to make sure that your side gig does not run afoul of that agreement. Employment contracts often include provisions stating that the full-time employer owns or has rights to any inventions or innovations created or developed by the employee. Sometimes this language is narrowed to during company time. Sometimes, it is not. Another common provision prohibits an employee’s competition with the full-time employer. This language prohibits employees from starting a business that may compete with their employment or engaging in work outside of their job that creates a conflict of interest with their employment.
Now that you know that your side gig won’t interfere with your full-time job, it’s time to get started on building that side business. The next step is probably forming a Limited Liability Company (“LLC”). An LLC is a corporate entity that protects the members of the company from liability. Members of an LLC generally cannot be held liable for the company’s debts or liabilities. If your side gig is run by you alone, you can also take advantage of the easy flow-through tax structure allowed by an LLC and tax deductions for business expenses. Creating a company may seem like overkill for your small side gig. While an LLC is an initial investment of time and capital, the liability protection to you personally and the creation of correct formal groundwork for your company are invaluable.
Starting an LLC in Colorado does not need to be difficult. The Secretary of State for Colorado has a website that allows you to do all the initial filings. The website allows you to check on the availability of your LLC’s name, complete the Articles of Organization necessary to start an LLC, and file the Articles of Organization electronically. While relatively easy to start, there are a number of important formalities to follow for your new LLC. Failure to follow them can negate the liability protection of an LLC. Make sure to talk to an attorney if you have questions regarding your LLC.
Some businesses are only as valuable as its name. A company’s brand identity can be incredibly important for the success of that business. With that in mind, consider buying the domain name for your company’s name and all iterations of the company’s name. This can provide protection against imitators or those looking to dilute the value of your brand. Similarly, a strong social media presence along with attentive inspection of reviews will protect your brand name. When you are ready to scale up your side gig, you may want to trademark your business’ or product’s name. A lot of time, effort, and money can be spent building up your company’s reputation. That reputation is tied to your name or logo. A registered trademark will help protect that hard-earned reputation by preventing others from copying your business’ or product’s name or logo.
Depending on the type of business your new side gig is conducting, you may need specific legal advice and protection. For example, if you are planning to sell through an online site like Etsy or Amazon Marketplace, it’s a good idea to have an attorney review those many pages of close print that you are agreeing to. Those terms of service and related documents may include provisions that could be detrimental to your business. Be fully aware of the contract terms. Or, perhaps you are planning to sell homemade foodstuffs for your side gig. Have you researched local laws regarding food preparation? Colorado has the Cottage Foods Act which allows limited types of food products to be sold directly to consumers without licensing or inspection. However, if you don’t qualify under that Act, you will probably need a commercial kitchen. Does your side gig involve proprietary information? Then you might need your clients to sign nondisclosure agreements. In fact, most businesses benefit from a standard engagement agreement which sets out the terms of billing, timeframe, the work to be performed, and general disclaimers. This engagement agreement will be invaluable if something goes awry with that that client relationship.
The above steps and considerations can seem overwhelming when you just want to start a little side business doing web design, or consulting, or selling mittens that look like cat paws (yes, they exist), or whatever it is that is inspiring you to strike out on your own. Everything does not need to be done all at once. No one wants to invest significant assets into a side gig before the side gig is profitable. With that in mind, only do what is really necessary. Then, as your business grows, you can add additional protections and formalities. The investment in doing your homework and setting up your business correctly will be invaluable down the road. Make the smart move to protect yourself and your side gig from the outset.
[1] https://www.forbes.com/sites/lisaroepe/2016/12/21/how-this-millennial-turned-a-side-gig-into-a-1-million-business/#76fbc0494743|
[2] http://www.businessnewsdaily.com/9545-side-gig-while-employed.html
[3] http://time.com/money/4355287/side-gig-current-job/)
[4] https://www.fastcompany.com/3068209/answer-these-four-questions-before-adding-that-side-gig-to-your-day-job)
[5] http://www.businessnewsdaily.com/9545-side-gig-while-employed.html#sthash.bXFi87Xp.dpuf
