Protecting Your Home-Based Business From Legal Trouble

When you own and operate a home-based business it can feel like you’re on top of the world. You have no one telling you what to do as you pursue your passions. What most novice entrepreneurs forget, however, is that there are still rules and regulations that must be followed. Like any other type of business, you must remain in compliance with local and federal laws – or face legal troubles.

Running a business has its risks. Should you find yourself in the midst of legal complications, you could end up having to pay thousands of dollars in fees and penalties and could risk the demise of your business. The best way to safeguard yourself against trouble, it is best to prepare in advance. Educating yourself on common legal issues that could arise and working with legal, business, and financial experts, ensure that your home-based business is secure.

Overlooking the Importance of a Legal Entity

One of the most common legal troubles home-based business owners find themselves in is not establishing their business as a legal entity. Should you be sued by a customer, vendor, employee, or other establishments, you can run into problems if you’re not established as a legal entity.

If the judge rules in favor of the other side, you could be on the hook for a lot of money. This money can be obtained from your business assets, but it can also be taken from your personal assets. Essentially, this means that not only could you be financially ruined professionally, but you could end up losing your home, car, and other assets.

How can you keep someone from taking everything you own? Work with an attorney you can trust to decide on the best legal entity structure for your business. Whether you decide to be a Limited Liability Company (LLC), a Corporation, or a Non-profit, once established the law separates your personal assets from your professional ones. Meaning, if you’re sued and lose, they can only look at your professional assets to recover the damages.

Licensing, Permits, and Insurance

Establishing your home-based business as a legal entity only protects you so much. There are other federal and state requirements that you may need to comply with to legally run a home-based business. Though each state varies, some entrepreneurs who work from home are expected to have certain licenses and permits. State licenses, for example, are required for those who provide services that range from home improvement to insurance. Often companies will look to find funding from sources like to help scale their company from an administrative perspective. Once you have been in business for years and think it is time to grow, you may want to secure some funding for legal help.

Insurance is another factor that needs to be taken into consideration. There are several types of insurance policies that could be required depending on the type of business you run. The most basic type would be liability insurance which protects the company assets in the event that they’re sued. Other insurance may be mandated by the government such as worker’s compensation, unemployment, and disability.

Without the proper licensing, permits, and insurance, your business could be in a lot of trouble with the government and left very vulnerable in the courtroom against other parties. It is recommended that you start by contacting your local clerk’s office to find out which licenses, permits, and insurance would be required for your business. Then, contact a few insurance agencies to discuss the best coverages for you.

Neglecting to Pay Taxes

When you work for someone, your taxes are automatically deducted from your paycheck each cycle. Yet, when you work for yourself, taxes are your responsibility to pay. Failing to keep track of your finances and paying your business taxes in a timely fashion could result in some major penalties.

Though it may take years for things to catch up with you, if the IRS or state government learn that you have not been reporting or paying your taxes, you will have to pay it back – with interest and penalties. There are tax debt relief services and attorneys who can help you negotiate a fair repayment plan, but it’s always best to stay ahead of the game.

Talk with an accountant about your business finances is recommended. They can help you to automate your accounting so that you’re in compliance with local and federal tax laws.

It’s unfortunate that most home-based business owners have no ideas of the many risks that come with running a business. Though small and located in the home your business must still be in compliance to avoid legal issues down the line. If you have not taken the time to establish a legal entity, secure the proper insurance, licensing, and permits, or developed a system for managing your finances and paying taxes, talking with the recommended experts to get your business on the right track.

News Reporter