Morne Patterson - Why Running Your Side Hustle in a Separate Company is a Smart Business Move

 

Morne Patterson - Why Running Your Side Hustle in a Separate Company is a Smart Business Move

As the popularity of contractors and freelancers grows, many people are turning to side hustles to supplement their income. A side hustle is a way to earn extra money through a part-time job or business. While side hustles can be lucrative, they also come with risks, especially if you’re running them as a sole proprietorship. In this article, I’ll explain why forming a separate company for your side hustle is a smart move, and the advantages it can bring.

Introduction to Side Hustles

A side hustle is a great way to earn extra income, but it also requires a lot of work. It can involve creating and selling products, providing services, or even starting a small business. Many people use side hustles to pay off debt, save for emergencies, or fund their passions. However, running a side hustle can be risky if you’re doing it as a sole proprietorship.

Risks of Running a Side Hustle as a Sole Proprietorship

As a sole proprietor, you and your business are considered one and the same thing. This means that you’re personally liable for any debts or legal issues that arise from your side hustle. For example, if you’re sued for damages or breach of contract, your personal assets could be at risk. Additionally, you’re responsible for accurately filing your personal tax return which can be challenging when running your side hustle in your personal capacity.

Main Benefits of Forming a Separate Company for Your Side Hustle

Forming a separate company for your side hustle can help mitigate these risks and provide a host of other benefits. One of the biggest advantages is that it separates your personal and business finances. This makes it easier to track your income and expenses. Additionally, having a separate company can provide liability protection for your personal assets, and promotes tax efficiency as you will be able to claim expenses in the production of income which previously weren't deductible.

Legal Advantages of Having a Separate Company

Another advantage of forming a separate company for your side hustle is the legal and tax benefits. A company is a separate legal entity, which means it can enter into contracts, borrow money, etc. This can help protect your personal assets in case of legal issues.

How a Separate Company Can Help with Branding and Marketing

Having a separate company for your side hustle can also help with branding and marketing. A company name and logo can make your business appear more professional and established, which can attract more customers. Additionally, having a separate website and social media accounts can help build your brand and increase your online presence.

Separating Your Personal and Business Finances

When you form a separate company for your side hustle, it’s important to keep your personal and business finances separate. This means opening a business bank account and using it solely for your business expenses. It also means keeping track of your income and expenses and maintaining accurate records for tax purposes. By separating your finances, you can make it easier to manage your business and avoid any confusion or legal issues.

Steps to Forming a Separate Company for Your Side Hustle

Forming a separate company for your side hustle is a relatively straightforward process. Here are the basic steps:

1.       Choose a business name and check if it’s available.

2.       Check if the internet domain name is available for your business.

3.       Decide on the type of company you want to form.

4.       Register your company and domain name.

5.       Register for Income Tax.

6.       Open a business bank account.

Common Mistakes to Avoid When Incorporating Your Side Hustle

While forming a separate company for your side hustle can provide many benefits, there are also common mistakes to avoid. One of the biggest mistakes is failing to keep accurate records and filing taxes on time. This can result in penalties and legal issues down the road. Additionally, it’s important to choose the right type of company for your business and ensure that you comply with regulations.

Conclusion

Running a side hustle can be a great way to earn extra income, but it also comes with risks. By forming a separate company for your side hustle, you can limit your personal liability, improve tax efficiency, and provide many other advantages. So if you’re serious about your side hustle, consider forming a separate company and take advantage of all the benefits on offer.

Need Help?

Ready to take your side hustle to the next level? Contact me, Morne Patterson, at https://mornepatterson.co.za/contact-me and learn more about forming a separate company for your business.


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