Lesson 7 - Starting Home Based Business

Lesson 7 - Starting Home Based Business

Home Business Structure

Selecting a home business structure is very important for a home-based business owner. Home-based businesses have several options when it comes to structure. Your business can be a sole proprietorship, a Limited Liability Company (LLC) or a corporation. If you plan on going into business with someone else, consider an LLC, Limited Liability Partnership (LLP), or traditional partnership, as it will help you preserve limited liability. Before you consider which type of business structure to opt for, a home business owner should consider:

* Business start up costs

* Complexity of and time involved in business maintenance

* Potential personal liability

* Business image

* Tax issues

Comparing home business structures

To see which business model best suits a home business owner's needs, it is important to know the advantages and disadvantages of each business structure.

Operating a sole proprietorship will cost the least amount to start up and maintain. It is also the easiest business structure when it comes to filing tax returns, requiring only a Schedule C to go with a 1040 Form. A corporation costs a bit more to start and maintain, and an LLC or partnership can be equally costly. Forming an LLC or a corporation also requires legal paperwork and involves a lot of complex jargon. More complex business structures, such as partnerships and corporations, mean outside involvement in your home business.

In a sole proprietorship, you are personally responsible for everything including debts incurred, damages and lawsuits. Your best protection is to have your home business adequately insured. Forming a corporation or LLC has the major advantage of protection of your personal assets, such as your home or your savings, from any business losses.

Business image is an important factor in deciding whether your home business should be a sole proprietorship or a corporation. This is because people associate the size and permanence of a business with the terms such as "Inc" or "Corp" and it gives people a sense of permanence as well as the idea that your home business is serious not a hobby.

If you are thinking of teaming up with someone, you need to seriously weigh the advantages and disadvantages of forming a partnership, a limited liability company or a corporation. While partnerships are often inexpensive and simple to start, the advantage of an LLC or a corporation is that you limit your personal losses. This also means that more people are involved in the running and operations of your business.

Before deciding on any of these options for your home business structure, it is best to consult a lawyer or a tax professional well versed in home-based business and legal issues. After applying these considerations you can decide which home business structure will give you the most in terms of money and in overall personal satisfaction.