In starting a home business, you not only need to create your service or product, develop a business plan and set up your home office, but you also need to take care of the legal aspects of your business. Here’s an overview of the tasks you need to take care of to legally establish a home business.
Choosing a business name is a fun part of the business set-up, but before you start submitting it on your business documents, check that the name isn’t already trademarked. Using a protected name can result in a lawsuit. Visit the U.S. Trademark Office online, uspto.gov, to do a trademark search on the name you want to use.
Also check with your state’s office that regulates corporations to make sure the name isn’t used in your state. Finally, contact your city and/or county clerk’s office to see if the name is already in use in your local area.
The next step in setting up your business is determining the legal structure. The easiest structure is the sole proprietorship, which doesn’t involve any paperwork. However, in a sole proprietorship, the business and you are viewed as a single entity, which means your personal assets along with your business assets are at risk in the case of a lawsuit against you. You can separate your personal and business assets by forming a corporation. If you’re a single owner, the easiest way to do this is by forming a limited liability company (LLC). This requires paper work and a fee, but in most states it’s not very expensive. There are books, kits, services and lawyers that can set up an LLC for you.
Licenses and Permits
Once you have your name and business structure determined, apply for needed licenses and permits. Most cities and counties require a license or permit to operate a business. You can contact your local city or county government office to learn the requirements for getting a business license.
You may also need an occupational license or permit if you’re going to provide a product or service regulated by your state. Most states require additional licensing for businesses involved in grooming, real estate, financial services, caretaking (i.e., childcare) and counseling. Search your state’s website for occupational licenses and requirements.
If you’ve chosen a business name that is different from your given name, your county or city will likely require you to file a doing-business-as statement. Some areas refer to this as “assumed name statement” or “fictitious name statement.” The statement notifies your county clerk that you’re going to operate a business under a different name. In most cases, the statement is printed in the local newspaper to let the community know, as well. Contact your city or county clerk’s office for information on filing a doing-business-as statement.
If you’re operating as a sole proprietor, you can use your social security to file your business taxes. However, if you decide to create an LLC, you’ll need to apply for an Employer Identification Number (EIN) through the Internal Revenue Service.
If you’ll be selling tangible goods (products) and your state charges sales tax, you’ll need to apply for a sales tax permit. Once you have the permit, you charge your customers sale tax, which you then pay to the state. Contact your state’s tax or comptroller’s office for information on how to apply for a sales tax permit.
Some states charge property tax on business equipment. If you pay personal property tax on your car or home, odds are you’ll need to pay business property tax as well. Contact your local government business or tax office for information on whether or not you’ll need to pay business tax.
Areas zoned residential are protected from the traffic, noise, neon signs and other negative aspects of business areas. Many localities have created waivers for people who want to run a home business, as long as the home business doesn’t negatively impact the neighborhood, but you need to find out the laws before you start. Operating your business without checking about zoning can result in a fine and/or moving your business out of the home. Your city or county zoning office will have information on what you need to operate a business from home.
While you’re at it, check your Home Owner’s Association’s covenants, conditions and restrictions regarding home business. If you rent or lease, check your contract for any restrictions on home business, as well.