In short, home-based businesses are businesses that are run out of the business owner’s own home. Generally speaking, these are small business operations conceived and started by an individual, as opposed to a group of people. Many home-based businesses are run by people who work full-time, making these businesses side or part-time jobs that help them pursue their ideal career or supplement their existing income.
In such situations, a section of the home is usually designated as the principal location for conducting business operations. There are many laws and local ordinances which exist to govern home-based businesses. The intention is to prevent various conflicts and issues such as:
- Noise violations;
- Parking and traffic congestion;
- Health and safety issues; and
- Preserving the overall “residential feel” of a neighborhood community.
Some examples of the most common types of home-based businesses include:
- Various crafts production and sales;
- Trade or sale of works of art;
- Online services;
- Phone services;
- The sale of small items; and
- Baking or other food production.
Alternatively, “home-based businesses” can also refer to people who perform office work from their home, or who telecommute.
There are multiple and various advantages to home-based businesses. Some examples include:
- Saving costs on business space and/or commercial real estate leases;
- The ideal method for many small business start-up companies; and
- Home office tax deductions are often available.
Many smaller businesses begin as home-based operations, and eventually expand to a dedicated office space when operations outgrow the home.
What Restrictions Are Placed on Home-Based Businesses?
Generally speaking, most counties or cities are zoned as such that:
- Commercial offices can only exist in certain areas;
- Manufacturers are restricted to a different area; and
- The rest is reserved for residential homes.
However, you can run a business out of your home as long as you comply with the following guidelines:
- It must be a non-polluting business;
- Your home must still be used primarily for residential purposes, meaning, the space in which business is conducted should not be more than the space in which you live; and
- The business must not affect your neighbors in any negative way.
It is important to note that there are still some cities and counties in which the zoning laws are so strict, they do not allow for any type of business to operate in a residential area. To ensure operating your home business is not a zoning violation in your city or county, you should first obtain a copy of your local zoning ordinances from the county or city clerk’s office.
These ordinances should provide an explanation as to whether you are allowed to operate a business out of your home. They will also explain whether there are any limits or restrictions on the type of businesses that you can run, and whether you will need a license or permit to run a home business.
You may also wish to make an appointment to meet with your local zoning and planning department, if you have further questions. But, you should only go to a zoning official if you cannot first find your answer through local ordinances. Also keep in mind that there may be private restrictions on home-based businesses. This could include those associated with homeowner’s associations, as well as deed or lease contract terms.
What Are Some Legal Issues Associated with Home-Based Businesses?
One common legal issue is that of employment or business fraud. Many home-based businesses are actually fraudulent in nature, or are outright scams. This is especially true of businesses that are advertised online through internet fraud, spam, or junk e-mail. Signing up for a “home business” could lead to identity theft or other types of scam issues. An example of such a business would be any work-from-home opportunity that requires you to pay an initial startup fee.
Legal issues involving insurance or contract matters are also commonly associated with home-based businesses. It is more likely than not that a person’s homeowner’s policy will not cover all of their business assets. An example of this would be if something you use exclusively for work, such as a fax machine, is stolen. It may not be covered under your homeowner’s policy; as such, you may not be reimbursed for it under your policy.
Something else to consider is that even if something covered by your homeowner’s insurance is damaged or stolen, you may still not get reimbursed for it if you did not disclose to the insurance provider that you were running a business out of your home. This would render your policy void. You will likely need a separate home business insurance policy.
In order to avoid as many legal issues as possible, you should ensure that your home business is compliant with local zoning laws. Additionally, you should fully disclose your home business operation to your home insurance provider. You can also add riders to your homeowner’s policy to cover normal business expenses. Riders are additional insurance provisions purchased separately from the basic insurance policy.
Obtaining insurance coverage for your business assets is another simple way to avoid legal issues associated with your home-based business. Such assets could include property used for conducting your business, such as electronics and furniture. This could also include automobile insurance if you do any unique business tasks involving your vehicle.
Additionally, you will want to obtain liability insurance, should any other people be injured in the course of you doing business. While your homeowner’s policy would probably protect against social guests who may trip and fall, or are otherwise injured on your property, it probably does not cover work associates or employees who do the same. This is why you will need a separate insurance policy for work-related injuries that occur on your premises.
It is important to note that you may need more than just a simple rider on your homeowner’s insurance to properly cover all work-related assets and activities. You may want to consult with an attorney before pursuing a home-based business, or obtaining a home-based business insurance policy.
What Permits and Licenses Are Required to Operate a Home-Based Business?
What permits and licenses are required for you to operate a business from your home will vary greatly according to how your city is zoned, as well as the type of business you are running. A home-based business owner may need to obtain and secure multiple various licenses, including:
- General business licenses;
- Industry or profession-specific licenses; and
- Permits for displaying commercial signs and other business-related activities.
These permits are necessary to help the business owner avoid liability for business violations, as well as ordinance citations.
Do I Need an Attorney for Help With a Home-Based Business?
As previously mentioned, you may wish to consult with a knowledgeable commercial attorney prior to opening your home-based business. An experienced local business attorney would be best suited for understanding your state’s specific laws and zoning designations as they pertain to a home-based business.
An attorney will also help you identify and apply for all necessary permits and licensure, as well as advise you regarding the various insurance policies you should obtain in order to avoid as many legal issues as possible. If you are presented with a home-based business offer, an attorney can help you review the offer, in order to ascertain whether it is fraudulent or a scam. Finally, an attorney can also represent you in court, as needed, should any legal issues arise.