I fell into consulting totally by accident, and I don’t think this is unusual. You happen to have some specialized knowledge or an area of expertise. Someone learns of this and asks for your help. Voila! You’re now a consultant. Now what? If you are serious about doing consulting, regardless if it’s on a full time or part time bases, the first thing I would consider doing if forming a legal entity (i.e. a company). I can hear it now…Woah! Dude you’re crazy! I don’t have thousands of dollars to spend to create a company! What’s the point of that?

Professional Image
Companies are much more likely to want to deal with “Embedded Enterprise” than with Joe Consultant. Yes, it’s superficial, but sometimes superficial works in your favor. Joe might be paid $40-$50/hour, he’s a hired-gun after all. Embedded Enterprise would clearly no consider those rates. All the corporate overhead…

Legal Liability
Let’s face it, we live in a litigious society. Business relations sometime sour. You might get sued. If you are not incorporated, you are on the hook for defending yourself which might put a mighty crimp on your financial resources. If a legal entity is sued and it runs out of funds, well…it can always declare bankruptcy. At worst, you loose your investment in the business. Beats loosing your house.

It’s Cheap!
It cost me less than $500 to create a Limited Liability Corporation (LLC). Your mileage may vary, but in my book, that’s cheap insurance against trouble. Note that with a sole owner LLC, the company’s income or loss is reported directly on your taxes. There really is not a huge accounting burden. Follow a few simple rules (and use simple accounting software) and the burden is minimal.

Name Protection
If you incorporate, then the corporation name is registered with the state. No one else can use it (in the state). I wouldn’t go calling myself Wal-Mart Engineering (that’s begging for trouble…)

Less trouble with the bureaucracy…
A few years back, we used a consultant to perform some work. They were located remotely, but they had a computer that was provided by the company. Some state agency was leaning towards declaring this consultant an “employee” (there was also some requirement about how much supervision an employee received vs. a consultant…bureaucracy at it’s finest) which means that we would have been liable for taxes, etc… We were able to present the case that they were a consultant, but this left an impression on me. If you are incorporated, there is NO doubt that you can’t be an employee, no matter how much supervision you receive.

Those are just some of the reasons I can think of to incorporate.
Beside, doesn’t CEO sound better than engineer?

P.S. I’m not a lawyer (although I do know some) so go consult your own before you take my advice. I know a thing or two about programming and embedded systems, nothing about the law.