Every business is obligated to operate within the law, regardless whether it’s located in a home office or the executive suite at Trump Towers.
Home business legal structure
One of the initial steps to take when setting up a home-based business is determining the type of business entity (legal structure) to operate under.
Generally, there are three methods of operation: sole proprietorship, partnership or limited liability company (corporation). The most common method used by home-based businesses is sole proprietorship, primarily because it’s the simplest and cheapest way to go.
However, as a home-based business owner, you may be subject to a wide array of liability issues, so be sure to get expert advice suited to your type of business. For example, if your business involves considerable financial risk or the potential to be sued, you may want more legal protection than that afforded by a sole proprietorship.
Home business registration
Registering a small business is not a legal requirement if the business is being operated as a sole proprietorship. However, you may want to register your business anyways because doing so is a relatively inexpensive method of providing some copyright protection for the business name. As the business grows, you may decided to change its entity and having the business’s name already registered will be one less step you have to take at that time.
Home business licensing
Before you conduct trade of any kind, you should first familiarize yourself with municipal, state and federal laws that are applicable in your jurisdiction. Some states require that you obtain a business license before you sell products; others demand only that you obtain a re-seller’s certificate. The onus is on the business owner to make sure that all licensing laws are complied with prior to conducting business.
Home business zoning
Zoning requirements and regulations vary from one municipality to another. Before you hang out your shingle, it is a good idea to conduct some research into the applicable bylaws for your particular neighborhood. As a general rule, however, zoning issues seldom arise unless your business has a detrimental affect on your neighborhood.
Some municipalities have sign ordinances restricting the size, location, visual impact and type of sign you are permitted to use outside your business. Before you go to a lot of expense having a sign designed and installed, you might want to check out the bylaws referencing signage for your particular area.
Home business taxation
As a business owner there are certain taxes you are required to collect and remit to the government. In addition, the reporting of your income tax will change. It is your responsibility to know exactly what these changes are and how they must be dealt with.
Consulting with a tax professional at the outset may result in fewer headaches and a better bottom line down the road. Should you get audited down the road, you will quickly learn the hard way that ignorance is no defence in the eyes of the law.
Home business employment law
As a small business owner you are responsible for making sure any employee tax deductions are processed and submitted promptly and correctly to the IRS.
Home business insurance
A frequently overlooked aspect of operating a home business is insurance. Your home owner’s policy will not adequately cover you for the many contingencies you now face as a business owner. A small business insurance package will probably address things such as general liability, contents, vehicles used for business, health and disability and, if you employ others, worker’s compensation.
Home business permits
If your business is open to the public or uses flammable materials for manufacturing, you will probably be required to obtain a permit from the local fire department. In some jurisdictions regularly scheduled inspections are offered in lieu of permits. It is your responsibility to make sure the building in which you conduct business meets all fire codes.
Any business that may contribute to air or water pollution – for example, operations that regularly use spray paint or any other chemicals that can be discharged into the air, sewers or waterways – will be required to obtain special permission from its municipality. In addition, state environmental regulations may impact your operation so it is wise to check out their requirements prior to setting up your business.
Is this really worth the effort?
As a small business owner it is important that you protect yourself both personally and professionally from liability; however, there is no need to feel overwhelmed. Operating a small business is stressful enough without adding legal problems into the mix.
This article is for information purposes only and should not be construed as financial or legal advice.
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