Making money on the side? Here's why you might need an LLC

With the nation's improving economy  − not to mention your possible addiction to watching "Shark Tank" - you may think it's a good time to finally start your own business.

In addition to checking on the permits required by your city, county and state (business licenses, zoning, etc.), you may want to consider setting up a Limited Liability Company, also known as an LLC.

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While operators of home businesses with limited assets - think online sellers on Amazon, eBay or Etsy, or freelance writers and artists - may not need an LLC, those dealing more with the public or possessing substantial equipemnt - like contractors, hairdressers or physical therapists - often find the protections of an LLC quite useful.

Here are some of the benefits to setting up an LLC:

A Limited Liability Company for your small business can save your personal finances from being lost if your business goes under or is sued.

• Separation: Your personal assets are separated from your business profits in case your business goes under or your business is sued.

• Addition: You can add other people to your LLC - even corporations, other LLCs and foreign entities - with no maximum number, according to the IRS. Most states also permit single-member LLCs and do not restrict ownership.

• Low-cost fees: The process is simple and low-cost through your state attorney general's office with an annual fee required to maintain your LLC status. You can even set up your LLC in another state if you think your state's fees are too high (but you still have to file and pay taxes in the state in which you reside).

• Simple taxes: Pass-through income taxation is an advantage with the individual owner reporting the LLC's income or loss on Schedule C of his or her individual tax return, so you don't have to fill out a separate tax return for your business.

If you're plan to move forward with creating an LLC, here are a few general guidelines on the process and rules that apply:

• Choose a name: You need to have a name for your business, including LLC at the end, with no more than 80 characters, including spaces. Some restricted words require additional paperwork and may require a licensed individual, such as a doctor or lawyer, to be a part of the LLC. Words that would confuse the name of your LLC with a federal or state agency (e.g. FBI, Secret Service, Treasury, etc.) are prohibited. Make sure the name is available by doing a name search on your state website, then reserve the name for a nominal fee. Is your website name available so that you can reserve your domain name? Even if you don't plan to make a website today, you may want to buy the domain name to prevent others from acquiring it.
• Select a registered agent: This person or business agrees to send and receive legal papers on behalf of your LLC. These papers include service of process of legal action (if you are sued) and state filings. The registered agent must be a resident of the state in which you have your LLC or a corporation authorized to transact business in your state. You may choose an individual within the company, including yourself, or a registered agent service such as IncFile.com that is free for the first year.
• File the Articles of Organization to register your LLC: Decide if your LLC will be member-managed or manager-managed. Your state may charge a filing fee.
• Form an operating agreement: This legal document outlines the ownership and operating procedures of your LLC.
• Obtain an Employer Identification Number (EIN): The Federal Tax Identification Number is used to identify a business entity so that you don't have to give your Social Security number. An EIN is required when filing state and federal taxes for your company. Also, banks may require an EIN for you to open a business checking account. An EIN is obtained from the IRS - either onlin or by mail - for free by the business owner after forming the company. Call 866-816-2065 or visit the IRS website.
• File an annual registration: Each LLC is required to pay an annual fee between January 1 and April 1 of the year following the calendar year in which the LLC was formed.