Choosing the Right Structure for Your Home-Based Business

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The number of home-based businesses being registered in the United States is literally exploding. A growing number of professionals are beginning to recognize the potential of setting their own hours and being their own boss.

Choosing the Right Structure for Your Home-Based Business

However, this is where their understanding of the concept of home-based businesses ends. Most don’t realize that in order to be a legal business entity, they must meet federal, state and often local regulations. Whether you are already working from home or are going into business for yourself, it might behoove you to understand why you must register as a business entity and then how to go about doing it.

Choosing the Right Structure Is Paramount

The first step in creating a home-based business is deciding what kind of business structure you want to register. While you might think that since you will be working alone, at least in the very beginning, you would want to register as a Sole Proprietor, you might want to take a look at the advantages of registering as an LLC. A Limited Liability Company offers a greater degree of protection for your personal assets. As an LLC, your personal assets are kept separate from your business (LLC) assets so if your company goes under, you still maintain control of anything not owned by the company. That’s a huge plus.

Keeping Uncle Sam Happy

Now, as to why you want to register as a business, you just need to think about keeping Uncle Sam happy. You are going to be responsible for paying taxes to the IRS, your state, and some municipalities tax businesses as well. Not only will you need to register as a business to get your Tax ID, but without registering you won’t get that Certificate of Occupancy you’ll need in most cities and states. Perhaps you might want to enlist the services of an accountant or an attorney at this point for several reasons. Zoning to do business is a huge issue in some areas, as are tax laws you will need to be compliant with.

A Little Research Goes a Very Long Way

Just because most home-based businesses are either formed as Sole Proprietorships or LLCs it doesn’t mean that you are limited to those entities. You can form a corporation, a partnership, an S Corporation, a C Corporation, and the list goes on. The point is, you really need to register to do business as an entity but you should also know that you have choices.

Take the time to research which organizational structure is best suited to your business plan and proceed from there. Learn the advantages and disadvantages of each kind of structure before settling on the entity you want to create. As mentioned, a lawyer or accountant would be best suited to help you decide on the structure you want to register. The bottom line is that unless you register as a business, you may face heavy fines and penalties. Keep it legal and you will be well on the road to success.

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