Legal Tips for Home-Based Business Owners
RULE OF LAW - JANUARY/FEBRUARY 2011
From arcane zoning laws to injury liability, Karen R. Harned, executive director of NFIB’s Small Business Legal Center, offers tips for home-based businesses to avoid legal trouble.
Increasingly, business owners are operating their businesses from home, since a home-based business is often cheaper and more convenient than a storefront business. Home-based business owners should know, though, that they face a number of legal issues.
At the outset, operating a business out of one’s home may violate some antiquated zoning laws. Luckily, though, these ordinances are often not strictly enforced. How do you keep them from becoming enforced? Cliff Ennico, an attorney in Fairfield, Conn., and author of the book Small Business Survival Guide, advises home-based business owners to be respectful of neighbors to avoid any complaining.
Ennico also suggests that proprietors use a commercial mailbox at a UPS Store because it offers a genuine business address, and the UPS Store will sign for packages and provide notary services.
Home business owners must decide whether to invite clients to their home office. It may be convenient, but meeting at home poses numerous legal problems to a home-based business owner. Among other problems, meeting clients in the home exposes owners to liability from potential injuries. If a client slips on your icy front steps, for example, you’re liable.
Instead of meeting with clients in the home, Ennico advises proprietors to meet at public places, like restaurants. Alternatively, home business owners can seek out local businesses to use their conference rooms for client meetings.
Insurance coverage also presents a host of issues for home-based businesses. Basic homeowners polices do not cover damage or loss of business-related items such as computers, files or office furniture. Ennico suggests that proprietors either add a home office rider to their homeowners policy or acquire business interruption insurance, which covers operating expenses, like rent or utilities, and may even compensate lost profits. Additionally, if clients will be coming to the business, proprietors should acquire common liability insurance to cover business guests.
A final issue for home-based business owners is the home office tax deduction. Business owners who use part of their home as their principal place of business are eligible to—and should—take a home office deduction when filing their income tax return. In order to avoid any trouble from the Internal Revenue Service, accurate measurement of the office space is important, so Ennico advises home business owners to hire a contractor to make the measurement. Finally, it is important to keep the business operations separate from the domestic operations of the home, because the deduction is limited to parts of the home used exclusively for business.
While home-based businesses offer the advantages of cost savings and convenience, they also present a set of unique legal issues and challenges. Be sure to know what you’re getting into.
Karen R. Harned is the executive director of the NFIB Small Business Legal Center, www.NFIB.com/legal. This article is intended to provide general information for reference only and should not be considered legal counsel.