5 Necessary Legal Steps for Starting a Home Business
It may seem simple to start a home business once you have a good idea about how to make money. Start-up costs can be modest because you don’t need to pay for office space; you already have a place in your home. But before you open for business, take the time to consider the following five legal matters so you start off on the right foot.
1. Check Zoning Laws
Just because you want to work from home doesn’t mean it’s legal to do so. Municipal zoning laws limit the types of activities that can be run from home. If you’re a consultant or freelance writer, there’s probably no problem. But if you plan to have employees, customers, and others to your home, there may be limits or you may be barred entirely from operating from home. Before you do anything else, call you local zoning board for details.
If you live in a cooperative apartment or housing community, check on your board’s restrictions. For example, your city may allow a home business, but your coop board may not.
2. Choose an Entity for Legal Protection
The easiest way to start a business that you intend to run yourself is simply to operate as a sole proprietor. You don’t have to take any action (other than to file a form called a DBA (Doing Business As) with your city or county if you use a fictitious business name rather than operating under your own name). But just because it’s easy doesn’t make it the right choice for you.
Depending upon the nature of your business, you might want to adopt a business entity that gives you personal liability protection. Your choices: a limited liability company (LLC) or a corporation. Both of these are formed under the laws in your state and both protect your home, car and other personal assets from creditors’ claims. Cost: From a few hundred dollars in state filing fees and up, depending on whether you can do it yourself, use a self-incorporator (such as BizFilings) or have an attorney do it for you.
Note: If you incorporate, you can choose to be taxed as an S corporation so all business income and expenses are reported on your personal return. This avoids the so-called “double tax” of a regular (or C) corporation where profits are taxed twice (once at the corporate level and again at the owner level).
3. Get Licenses and Permits
Operating from home does not relieve you of any federal, state, or local licensing and permit requirements related to your business. You can determine which requirements apply to you by going to Business.gov (enter your Zip code and the type of business, such as child care services or electrician).
4. Protect Your Intellectual Property
A name, a product you’ve invented, or a song you’ve written that you plan to market can receive special legal protection: a trademark, patent or copyright. The federal government grants special protection for these items of intellectual property if you follow the steps to secure the protection. Without protection, someone else can use the same name, invention or song with no compensation to you. Before you invest time and money in your business, protect these vital assets.
- For trademarks and patents, go to the U.S. Patent and Trademark Office.
- For copyrights, visit the Copyright Office.
5. Determine Sign Limitations
If you’re allowed to run a business from home, what type of sign are you permitted to display? Many localities have limits on the size of a sign and where it can be displayed. Again, call your city or town to find the answer.
Home Business Bottom Line
As excited as you may be at the prospect of starting your business, take the time to do some important “prep work” that can save you money down the road. When in doubt about any of these legal matters, consult an attorney.