Protecting your home-based business from legal claims

Many more people are creating home-based businesses or adding another gig to their repertoire these days.

But many of those entrepreneurs do not realize that the same legal requirements apply to them as to any other business. A business attorney can help you make sure your ducks are in a row.

Currently, the SBA has nearly 30 million small businesses on record and, believe it or not, most of them are home-based. That equates to nearly 50 percent of the U.S. economy.

Here is a look at some key actions for home-based businesses to take to ensure they are following the law:

Be sure to have any necessary licensing and insurance in place.

In some states, a home-based business must have a business license. Check with state or local entities that control your type of business to determine what you need.

For an e-commerce business — even if it is an Amazon, Etsy or eBay store — you might need a seller’s license.

And even if you don’t need a license, you will want to register with the state to collect or pay sales tax on sales made within your state. Also, if you intend to hold a significant amount of inventory, check your local lease and zoning codes to ensure there are no bans on having the type of business you have in your home.

It’s also critical to find out what type of insurance you need to protect you if something goes wrong, such as a customer being injured on your property or someone who ordered a product from you suing you as a result of an alleged defect.

Pay attention to what taxes you are required to pay.

If you become a home-based business owner, especially after working for a larger entity in the past, it can be difficult to shift to keeping track of your own tax obligations.

That’s especially true because tax laws change regularly, and what applied to you last year might be different this year. There is no defense for not knowing the law, so it is advisable to speak to an attorney and an accountant.

Set up a legal entity for your business.

Home-based business owners often operate on the fly and don’t want to spend the money to set up a legal entity.

In some cases, that might be okay. But depending on the type of business you have, you might want to set up a limited liability company (LLC) or a corporation. Depending on the entity, you can better protect your personal assets should any claim arise against the business.

If you have an online sales business, an LLC is likely to be the right choice. In other cases, such as for certain technology-based businesses, a corporation might be better.

Consult with a business attorney to determine what legal entity is right for your business and for help with setting it up.

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