Business Legalities

Once you’ve decided what home business to engage in, you need to secure a license to operate legally. Sometimes, a license is all you will need, but depending on what your locality requires, you have to exercise due diligence in securing other needed permits, should there be any.

Business Structure: Before heading to the licensing office, you have to decide on how you are going to structure your business. It can either be a sole proprietorship, or a partnership. In a sole proprietorship, you have the business all to yourself, and so are the risks that go with it. In a partnership, you share the business and all the risks with a partner. This also offers some tax advantages. Your paperwork should be prepared, or at least reviewed, by a lawyer. The business will have its own tax identification and social security number since it will be a separate entity. If you have questions about taxes and legalities, I’d recommend that you talk to a tax advisor or a lawyer.

Business License: Not all localities require small home-based businesses to secure a business license or permit. In areas that do, a license or permit fee will depend on the size of the business, or in case of a renewal, it will depend on the revenue of the business. The local government office will issue a permit or certificate that you are required to display in your office. To find out more about business licenses and permits in your locality, try calling your local government office, the Chamber of Commerce or your local Small Business Administration.

Sales Tax Permits: A sales tax permit has to be obtained if you are planning to sell goods. It allows you to legally make tax exempt sales. If you are going to engage as a reseller, a sales tax permit is necessary so you can buy products at wholesale without having to pay sales or retail tax. For more information about obtaining this permit, you can contact your local sales tax office.

Property/Business Tax: There are areas where a business or personal property tax is required by the government. In this case, you may need to pay tax for your business equipment. Your personal property tax office should be able to help you.

Zoning: This is really important because there are laws that say you cannot operate a business in a residential area. You should check with your community or local government office if the business you are planning to set up may be allowed. Usually, if you are not planning to see customers at your place (that traffic may be disrupted in your neighborhood), or offer toxic or dangerous products, or put up a big sign on your front yard, the community will grant you permission to operate your home business.

Also, if you are renting a house, you should check your rental or lease agreement about restrictions on setting up a home business. If a restriction exists, but you believe that your business will not have a negative impact on your place, consider talking to your landlord about securing permission to run your business from home.

Additional Permits: There may be other permits that I have not covered here, depending on your business plan. Services like therapy and other similar industry may require special permits, so be sure to check this out before you launch your home business.