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Local Law and Your Home Business
Even though your business is in your home, you are still subject to fees and rules as stated by your local city or county and state agencies. To avoid heavy fines later on, it's important that you know what laws apply to you and what your rights and protections are.
First of all, licensing of your home business is a must. The fee for this ranges anywhere from $10 to $100 depending on where you live, but it gives you the legitimacy of a registered business. You'll get a nice little certificate, too, to add to your collection of official business paperwork.
To find out what other laws apply to you, check with your chamber of commerce as well as city, county, and state licensing and zoning offices. All of these organizations will either know what you need to do or else be able to direct you to someone who will. There are a few major areas of local law that may apply to your home business. These include:
Zoning – Home business does mean that you run your business out of your home and in some counties you may live in a place that is zoned “residential only”. This could create problems. The solution may be as simple as paying a fee. Or if your web host is in another state, you may be able to argue that that is your place of business. It can be tricky, but it's better to find out before you get slammed with heavy fines.
Doing Business As – This is a form you file if you work under a name or a business name that isn't your own. This is usually accompanied by a notice in the local paper. Check with local agencies.
Taxes – Everyone has to pay these as cities often hit small businesses with their own special taxes. Some include property taxes on things like office furniture and computer equipment as well.
Essential Services for Every Home Business
No home business is complete without a website. This means that you will need a reliable computer (that isn't the family computer), fast Internet service, and the best repair/warranty for your computer possible. Most home businesses are solely reliant on the computer and if yours breaks, you will lose profits for weeks until it's fixed. Investing in a service that is available 24 hours a day and sends a serviceman to your house will be well worth it, paying for itself in convenience and time the first time you use it.
Next, you will need your own separate phone line. It won't do to have the kids answering customer calls or losing messages from distributors. Even more convenient than a separate phone line in your home is a cell phone that you use just for business. This way you can write off the expense and your clients can get a hold of you any time they need you.
After that, you will need to purchase insurance – extra insurance to cover your home office and the equipment that you use for your home business, including your computer, any vehicles you purchase for use with your home business, and liability insurance. An insurance agent will be able to talk you through the finer points, making decisions about the limits and extra coverage you will need based on the nature of your business.
Of course, there's also a bank account in your business' name and a credit card as well. This will help you keep the finances of your business separate from those of your home business, as well as keep track of the finer points like exact prices, dates, and stores instead of having to highlight different bills.
Sole Proprietorship, Partnership, or Corporation?
When you register your home business, you must choose a legal form or structure to define it. Are you a sole proprietorship, a partnership, incorporation? Your decision will help county and state agencies understand your financial setup and will set taxes and licensing requirements accordingly. The other major area of your business that the legal structure affects is that of legal liability. If you are sued, what part of your assets and how much are liable?
Becoming a sole proprietorship is one of the most popular legal forms for home business owners to choose. It means that you are the sole owner, the only owner. You are responsible for taxes and it is you who will accept liability for damages if someone sues your company. The decisions are yours. The benefits and the profits are yours. This is the simplest legal structure for a business to take because it involves just one owner – you.
Choosing to create a partnership between yourself and someone else is the second most popular choice for home businesses. It goes without saying that knowing that person's business practices and history is hugely important. You want someone whose skills and talents complement yours. This person will share half of the responsibility in decision making and half the liability if something goes wrong. There is personal responsibility on both partners to cover the cost of damages if the business cannot. Also, the profits are split according to the percentage of investment by each partner.
Another option is to incorporate. There are very strong arguments against and just as strong arguments for incorporation. Here are both:
The up side of corporations:
Your employees' health and disability insurance premiums that you pay are tax deductible.
You can sell shares in your company.
Transferring ownership of the company between or among shareholders is a simpler legal process.
The principal investments in the business are protected against lawsuits.
The down side of corporations:
You definitely need a lawyer to incorporate.
The rules and regulations that control corporate interests are many – on both the state and federal level.
Double taxation – When your incorporated business earns money, it gets taxed at the corporate rate. When you take your share of the profits as a shareholder, you get taxed again at the personal rate
No matter what legal structure you choose, consider your options carefully and know the ins and outs, ensuring that you make the right decision for our home business.
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