Home-based Business - Legal Issues

Here are some important issues that you need to be aware of before investing your time, money, and effort into a new home-based business.

Let's first talk about legal structure. Depending upon how you view risk, you may need to establish a business entity for your new venture. Whether you decide to go with a LLC (Limited Liability Corporation) or a regular corporation, you need to take this vital step to protect yourself and your company from liability issues.

Of course, you can always operate as a DBA (doing business as) which tells the public that you are a company where in reality you are still an individual and protect yourself with an umbrella policy provided by an insurance company.

I have found over the years, that a good lawyer will tear apart any legal entity and expose you to risk if they think that you set up the corporation to hurt people and to prevent them from getting to your assets. Of course, it takes a lot of money and effort to sue and most people give up. In other words, sometimes bad people win.

If your state requires a business license, you will need to apply for one before you sell anything. If your state does not require a license, it may require you to have a reseller’s certificate.

In addition, there may be certain tax advantages to forming one type of legal entity over another. It all depends upon your long-term goal on how you want to report losses in the early years and shelter income in the later years.

Insurance is a commonly overlooked facet of running a home-based business. You will need to provide your own health, dental, and life insurance. Do some comparison shopping before settling on a new health plan. Talk to an independent broker who can talk to several potential carriers and investigate joining a Chamber of Commerce in order to gain group rates.

In addition to health insurance, you should also investigate liability and business property insurance. This will ensure that you will not be held responsible in the event of an accident or act of nature.

Zoning laws are an important consideration for home-based businesses. Check with your city’s zoning commission to see if there are any limitations in your area before opening your new business. Neighbors can be very intrusive and report you in a heartbeat if they do not like you or the noise you create when cars line up in front of your house.