Do Home Businesses Need to Use a Business Entity?
There are lots of people in Livermore who work from home, and many of them could use a business lawyer for home businesses. In 1995, audiences thought it was outrageous when Homer Simpson worked from home, wearing a comfy muumuu, but it was one of many times in the 90s when The Simpsons was way ahead of its time. Today, working from home is the norm in many industries, including the creative and high-tech types of businesses that tend to flourish in Pleasanton, California.
Which Business Entity Type Should You Choose for a Home-Based Business?
Many home-based businesses in Oakland, Hayward, and beyond are one-person operations. If you are working from home and do not have any employees besides yourself, then you might consider doing business as a sole proprietorship.
A sole proprietorship is not a business entity, it is just an individual doing business under a fictitious business name, sometimes called a DBA (Doing Business As) that requires a filing with the county recorder in the county in which the individual is doing business.
A sole proprietorship is the simplest and cheapest way to operate a business. It is also the riskiest because there is no entity shield to protect your personal assets from your business liabilities and debts. A sole proprietorship should only be considered for the simplest, smallest business operation. The minute your business becomes a real profit making business, or the minute you hire any employees or contractors, you should be operating your business with an asset protection entity, such as a corporation or a limited liability company. Only by using an asset protection entity can you protect your personal assets, such as your home and personal property from your business liabilities and creditors. When you operate your home business as a sole proprietorship, you report your business income on your individual tax return. Thus, there is no need to file a separate tax return.
Some Cases in Which Sole Proprietorship Might be Used
Not all home-based businesses are alike, but many of them could initially operate as a sole proprietorship. But before you just go ahead and use the sole proprietorship form for your home based business, you should chat with a good business lawyer to make sure that form will work best for your specific business. In many cases, you could be saving a lot of money by using a business entity instead of operating as a sole proprietor, even after subtracting the costs of forming and operating as an asset protection entity.
The following situations involve home businesses which might work initially as a sole proprietorship.
- Individuals who are just exploring the formation of a home based business and who do not have the budget to properly form an asset protection entity for their business. But as soon as their home based business start-up becomes a real business, and they have the budget to form an asset protection entity in which to operate their business, they should be talking to a good business lawyer to find out what is the best entity option and structure for their asset protection business entity.
- Self-employed individuals who get paid as independent contractors for their work for one or more companies (this category includes freelancers). However, many if not most companies today require their independent contractors to operate as a business entity such as a corporation or a limited liability company for the protection of the employing company.
If you operate your home business under an asset protection business entity, you will probably end up saving money because of the increased opportunities to deduct business expenses. And if operated properly, you will also get protection for all of your personal assets from business obligations and expenses. In addition, using a business entity to do business can significantly improve your personal balance sheet and income statement because you will be able to move all of your business debt and expenses out of your personal balance sheet.
Even if you think that a sole proprietorship is the way you want to start your home business, you should first spend a little bit of money to discuss it with a good business lawyer to make sure it is the right thing to do for your situation.
JGPC Law Can Provide Legal Services for Your Home-Based Business
Jim Gulseth and the other attorneys at JGPC Business & Corporate Law are experienced in helping startups and other small business projects, including home-based businesses, with the legal aspects of their business ventures. Contact JGPC Business & Corporate Law at (925)463-9600 for advice about how to establishing your home-based business.