Your Side Hustle May Need to Be Incorporated.

Your business entity isn’t fake. It’s just used for a different purpose.

Millions of working Americans are forming a business entity before they earn their first dollar.

IN RESPONSE TO  “The Fake Business Boom”

A widely shared essay by Ed Elson makes a case: America isn’t more entrepreneurial, it’s just filing more paperwork. Some 70 percent of new businesses are “likely non-employers,” the writer notes, and behind the record filings sits a culture of founder worship. People who have incorporated hobbies, produced podcasts with no product, and those who add “founder” to their LinkedIn profile as a personality trait. His verdict is binary: choose. Start the company or don’t, but stop pretending you can do it halfway.

He’s right about the cosplayers. He’s wrong to let them indict the tool. An LLC is not a personality; it’s a container, and a container is neutral about who holds it. The same fifteen-minute filing that dresses up a bored twenty-three-year-old’s lifestyle brand is, in the hands of a fifty-four-year-old with a real book of clients, something else entirely: infrastructure. His own yardstick, will it hire employees, is the wrong measure for the person who never wanted a payroll, only to protect what they own, capture the tax treatment the code now permanently rewards, and hold an asset they might one day sell.

And his closing demand, choose, quietly frames keeping your job as cowardice. For the professional in transition, it’s the opposite. Building a second engine while the first one still funds the mortgage isn’t dodging the decision; it’s the most rational way an experienced person ever makes it. So take his warning, most incorporated hobbies are hobbies. Then ask the better question: have you built the right container before you have anything worth putting in it? Here is what the tax code, the courts, and the data actually say.

There is a particular kind of professional who does everything right and still leaves money on the table. She is fifty-four, good at her job, and has quietly built a consulting sideline that brought in eleven thousand dollars last year. She reports it on a Schedule C, pays her taxes, and never once considered that the structure she operates inside, or the absence of one, is itself a financial decision. It is the most expensive thing most people never think about.

The Census Bureau has been watching a shift that rarely makes the evening news. Americans filed roughly 5.62 million applications to start new businesses in 2025. More than in 2024, and well above the 3.47 million annual average logged since 2005. Even the monthly rhythm is staggering: in August 2025 alone, seasonally adjusted applications topped 473,000. Something has changed in how working people relate to the idea of building something on the side.

A large share of these filings are not people quitting to chase a dream. They are people who still have a badge, a salary, and a 401(k) match. They are attempting building a second engine while the first one still runs. Bankrate and SurveyMonkey put side-hustle participation at roughly 37 percent of workers, with another 35 percent considering one. The Bureau of Labor Statistics counts 8.9 million Americans working multiple jobs. That is 5.4 percent of the workforce. It is the highest share since the Great Recession. The employee and the entrepreneur are increasingly the same person.

An entity, usually a limited liability company, sometimes an S-corporation election on top of it, is not a trophy. It is a container. It separates what you build from who you are. And the reason a growing number of people form one while still employed comes down to three levers the tax code and the courts hand you the moment the paperwork is filed: liability, tax treatment, and legitimacy.

Start with liability, because it is the one people feel viscerally. When you operate as a sole proprietor, there is no wall between your business and your house. A dissatisfied client, a contract dispute, a delivery gone wrong, any of it can reach past the business and into your personal savings, your car, your home equity. An LLC builds that wall. Members are generally not personally liable for the debts and obligations of the business beyond what they put into it. For a fifty-something with three decades of accumulated assets to protect, that wall is not abstract. It is the difference between a bad year and a ruined retirement.

The second lever is tax treatment, and this is where 2025 rewrote the math. Pass-through entities, LLCs, S-corps, partnerships, don’t pay tax at the business level; profits and losses flow onto your personal return. Layered on top is the Qualified Business Income deduction under Section 199A, which lets eligible owners deduct up to 20 percent of their business income before tax. That deduction was scheduled to sunset at the end of 2025. The One Big Beautiful Bill Act, signed July 4, 2025, made it permanent, and widened the on-ramp, raising the income phase-in thresholds to $150,000 for joint filers and $75,000 for everyone else, with a guaranteed minimum $400 deduction for active small operators. Translation: the code now offers durable, planned-for certainty to people who earn income outside a W-2. That is not an accident. It is policy telling you where the incentives point.

The third lever is the quiet one: legitimacy. An entity gives you an Employer Identification Number, a business bank account, and a clean line between personal and professional.

I have consulted with many solopreneurs and advised them that entity formation was important. This legitimacy concern is real. That line is what lets you deduct legitimate expenses without inviting suspicion, open a business credit profile, sign contracts as a company rather than as yourself, and for investors, hold real estate or a stake in a venture inside a structure built for it. For anyone whose side project might one day be sold, licensed, or handed to a partner, the entity is the vessel that makes the thing transferable. You cannot sell a hobby. You can sell a company.

The entity conversation is not only for the person selling consulting hours. For readers moving money into rental property, private deals, or a portfolio of small bets, the LLC does structural work that a personal brokerage account cannot. It quarantines risk deal-by-deal. A lawsuit tied to one rental property need not endanger another, or your primary residence, and it creates a clean framework for bringing in partners, allocating profits, and passing assets to heirs. The same pass-through treatment that helps the side-hustler helps the investor: income and depreciation flow through to the personal return without a second layer of corporate tax.

None of this requires a hedge fund. It requires a decision to treat your building and investing like a system rather than a series of one-off transactions. The container comes first; the contents follow.

If a voice in your head is whispering that entity formation and entrepreneurship are a young person’s game, the data says the opposite. A landmark study of more than two million company founders found that a fifty-year-old founder is roughly 1.8 times more likely to build a top-growth company than a thirty-year-old, and that success rates keep climbing until about age sixty. Prior work experience compounds the edge: founders with at least three years in their field were 85 percent more likely to launch a successful venture. The gray hair is not a liability on the cap table. It is the asset.

Survival data tells the same story. Roughly 70 percent of ventures started by founders over fifty are still operating five years in, versus about 28 percent of those launched by younger founders. Entrepreneurial activity among the over-fifty crowd has risen more than 50 percent since 2008. The people best positioned to use an entity well, experienced, capitalized, and risk-aware, are precisely the readers of this newsletter.

Honesty is the whole business of this newsletter, so here is the other side of the argument. An entity is a tool, not a talisman, and forming one badly or too early carries real cost. The research and the practitioners are consistent about the failure modes.

It costs money to exist. Formation fees run from about $50 to more than $800 depending on the state, and many states levy annual franchise taxes or report fees on top. California alone imposes an $800 minimum franchise tax every year the entity is alive, earning zero dollars or not. Register too early, before there is revenue to feed it, and you have created a small recurring liability in exchange for a benefit you are not yet using.

A single-member LLC does not, by itself, cut your taxes. This surprises people. By default, the IRS treats a single-member LLC exactly like a sole proprietorship, same Schedule C, same 15.3 percent self-employment tax on the profit. The liability wall goes up, but the tax bill does not move until you make an affirmative election (typically S-corp status once profits are large enough to justify it) and actually run payroll. The LLC is a legal shield first and a tax strategy only when you configure it to be one.

The wall only stands if you respect it. Liability protection is not automatic and it is not permanent. Courts will pierce the corporate veil, i.e., hold owners personally liable, when the entity is a fiction: commingled personal and business funds, no separate bank account, no records, no observed formalities. An LLC you form and then ignore offers a false sense of security, which is arguably worse than none.

It adds administrative weight. Separate books, annual filings, a registered agent, careful recordkeeping, sometimes a separate tax return, the compliance burden is modest but real, and it is the burden that most often gets neglected until it becomes the problem. If the side project earns a few hundred dollars a year and will never scale, the honest answer may be that a sole proprietorship plus good insurance is enough. The entity earns its keep when income, liability exposure, or ambition crosses a threshold, not before.

So the question is not “should I form an entity” in the abstract. It is whether your situation has crossed the lines where the container starts paying for itself. Three questions do most of the work:

1.  Exposure. Does the work put anything you own at risk, client money, physical premises, contracts, property, other people’s safety? If a bad outcome could reach your personal assets, the liability wall alone may justify the entity long before the tax benefits do.

2.  Profit. Is the venture clearing enough that the QBI deduction and, eventually, an S-corp election would meaningfully lower your effective rate? Consistent profit is the signal that tax structure has moved from theoretical to worth the paperwork.

3.  Trajectory. Are you building something you might one day sell, license, partner on, or pass down? Transferable value needs a transferable vessel. If the answer is yes, the entity is infrastructure, not overhead.

Answer yes to any one of these and the conversation is worth having with a CPA or a small-business attorney. A few hundred dollars that routinely saves multiples of itself. Answer no to all three, and you have permission to keep it simple, which is its own kind of wisdom.

The professional we met at the top of this piece, the fifty-four-year-old with the eleven-thousand-dollar sideline, is not behind. She is early. She has experience the data says is her greatest asset and a runway most people her age would envy: a salary still funding the life while the second engine warms up. What she has been missing is not ambition. It is the container. The tax code spent 2025 making the case louder than it has ever made it. The only question left is whether she, and whether you, will listen before another filing year goes by.

Ed’s limited view of business formation around those that create jobs was narrow and a misfire. I love his view on nearly all matters. This one was a miss.

RESOURCES & FURTHER READING

→  U.S. Census Bureau — Business Formation Statistics

→  IRS — Qualified Business Income (Section 199A) Deduction

→  Nolo — The Pass-Through (QBI) Tax Deduction Explained

→  SBA — Choose a Business Structure

→  AARP — Entrepreneurs Over 50 Are Turning Age Into an Asset

→  Bankrate — Side Hustle Survey

This article is educational and general in nature. It is not legal, tax, or investment advice. Entity choice depends on your state, income, and goals. Confirm specifics with a licensed CPA or attorney before filing.

— Sherman G. Mohr

Founder, Over50Pros & Front of the Check

If you need assistance or want to discuss anything above, schedule a call.

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The startup ecosystem often focuses on venture-backed mega-exits, but thousands of solopreneurs, bootstrapped founders, and small teams sell businesses for $100,000 to $2,000,000 every year. Forming a distinct legal entity (LLC or Corporation) is a vital prerequisite for these deals. Buyers buy entities, clean assets, and organized accounts, not informal personal side-hustles.

Below are real stories of founders who built side-ventures or micro-businesses and exited for under $2 million, along with details on how entity structure made the acquisition possible.

Real World Acquisition Stories (Under $2M)

1. Alex Boyd – Zencast (Sales Engagement Platform)

Business Model: Bootstrapped B2B SaaS platform serving niche sales teams.

Exit Deal: Sold on an all-cash, next-day basis at a 3.48x earnings multiple.

The Story: Alex Boyd built Zencast as a focused software tool. Instead of holding out for an inflated valuation with risky earnouts, he accepted an all-cash upfront exit with zero post-closing contingency risks.

Why Entity Formation Mattered: Because Zencast was held in an LLC with a clean P&L (Profit & Loss statement) and zero intermingled personal expenses, the buyer was able to complete due diligence in days. The clear separation of software IP inside the corporate entity made a "next-day" asset transfer possible.

Source: Read Alex Boyd's Breakdown on SaaS Multiples & The Zencast Deal

2. Nancy Mancilla & Brian Noveck – ISOS Group (ESG Consulting)

Business Model: Boutique sustainability and ESG consulting services.

Exit Deal: Acquired by Environ Energy for close to $2 million cash upfront (plus additional equity considerations).

The Story: Nancy Mancilla started ISOS Group as a small mission-driven consulting firm, scaling it over time to $1.3 million in annual revenue with just 4 full-time employees. When Environ Energy approached them with an acquisition offer, the founders were able to transition the division seamlessly.

Why Entity Formation Mattered: In service businesses, client contracts and staff engagements are the primary business value. Operating as a formal corporate entity allowed ISOS Group to transfer corporate client contracts, commercial liabilities, and brand IP intact to Environ Energy.

Source: Read ISOS Group's Acquisition Case Study on They Got Acquired

3. Joel Klettke – Case Study Buddy (B2B Content Agency)

Business Model: Boutique done-for-you customer story and case study writing agency.

Exit Deal: Acquired by Testimonial Hero. (Though exact terms remain under non-disclosure, the deal was a micro-agency acquisition well within the sub-$2M range based on industry benchmarks).

The Story: Joel Klettke built Case Study Buddy from a solo copywriting practice into a specialized productized service agency charging $3,000–$5,000 per case study. In 2024, Testimonial Hero acquired the company to merge written case studies with their video production offerings.

Why Entity Formation Mattered: Transitioning from "freelancer" to a formal legal entity allowed Joel to build Standard Operating Procedures (SOPs) and hire a team of contractor writers. Testimonial Hero bought a operational brand and legal asset—not just a freelancer's client list.

Source: Read about the Acquisition via Testimonial Hero & Case Study Buddy

4. Micro-SaaS Buyer Story – Damon Chen (PDF.ai)

Business Model: AI document utility software.

Exit Deal: Purchased for $25,000–$50,000 on Acquire.com, scaled by solopreneur Damon Chen to $2,000,000 in revenue.

The Story: A solo software developer built a basic AI tool for viewing PDFs but lacked the distribution or interest to scale it. On Acquire.com, he sold the micro-app's codebase and rights for under $50,000 to solo founder Damon Chen. Damon rebranded it to PDF.ai, focused heavily on social marketing, and grew it into a 7-figure solo venture.

Why Entity Formation Mattered: Micro-acquisitions under $100k happen quickly using standardized Asset Purchase Agreements (APAs). Having the software held within an entity structure ensured a legal chain of custody for code rights and domain ownership during the $50k transaction.

Source: Listen/Read the Case Study via SaaS Club & Acquire.com

Primary Places to Research Sub-$2M Small Business Exits

If you want to track real-time transactions, deal terms, and founder interviews in the $50k–$2M range, the following platforms offer verified data:

They Got Acquired: A media publication created by Alexis Grant specifically focusing on "smaller" exits (6-figure and 7-figure deals) for bootstrapped founders, women-led startups, and solopreneurs.

Acquire.com (formerly MicroAcquire): The premier marketplace for buying and selling online micro-businesses (SaaS, eCommerce, newsletters). They publish frequent podcasts and case studies on how solopreneurs format clean entities for fast exits.

Quiet Light Brokerage Case Studies: A leading brokerage firm specializing in online businesses selling between $100k and $10M. Their podcast and blog break down exact P&L cleanliness and tax preparation steps required before selling.

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What is all this fuss about business formation?

When you start building something, it’s a huge investment in time and resources. In most cases, people who start a business are working hard to experience some measurable benefit. The legal and tax environment often gives those companies operating inside an entity formation a leg up.

I want you to have all the advantages as well.

And as always, if you need help with anything related to topics in the newsletter or transition over 50 years old, schedule a call.

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