Legal Methods for Growing Your Home Business

As a home company begins to expand, the entrepreneur must be prepared to take their side hustle to the next level. Discover your alternatives here.

What you’ll discover:

What are the benefits of incorporating my home-based business?
When should I incorporate my home-based business?
Can I start a company while working full-time?
When should I establish a business place outside of my home?
Is it allowed to hire somebody to work in my garage or at home?

Many entrepreneurs begin their businesses at their kitchen table, garage, or garden. It might just be a side job to help pay bills or earn a little more dollars for a new vehicle or vacation. But, such home businesses may suddenly evolve into something far larger than expected. As a home company begins to expand, the entrepreneur must be prepared to take their side hustle to the next level.

What are the benefits of incorporating my home-based business?

Most individuals who create and run side hustles or home enterprises do so as a sole proprietorship, sometimes known as an unincorporated business. Yet, as your home company expands, there are advantages to incorporation and formalizing the corporate structure.

As a single proprietor, the company owner is personally accountable if anything goes wrong or there is a debt that the business cannot satisfy. This implies that the company owner may be forced to settle debts using personal assets and bank accounts. Companies that incorporate a corporation or a limited liability company (LLC) are exempt from this requirement. In general, forming an LLC or corporation protects the company owner’s personal assets while enabling the firm to take the risk.

Moreover, both companies and LLCs provide their owners tax advantages. By choosing S-corporation tax status, you may avoid double taxes on company income and dividends. An LLC may choose to be taxed as a corporation or to have its earnings and losses “passed through” to the owner’s personal taxes. Moreover, both corporations and limited liability companies enable you to deduct regular company expenditures such as wages, office supplies, and computer equipment, lowering your total tax burden.

Lastly, a formal structure improves a company’s reputation with customers, prospective employees, suppliers, banks, and the Internal Tax Service (IRS). When a company includes the letters “LLC” or “Inc.” in its name, it improves its image since people perceive it to be a professional operation. Consult with a professional attorney before deciding on the best structure for your company.

When should I incorporate my home-based business?

There is no predetermined timetable for establishing your home-based firm. It might be determined by your company’s growth, customers, and ambitions. It is critical to incorporate at the appropriate moment, since incorporating after an occurrence or after a contract has been signed may not insulate owners from personal culpability.

Before signing into any contracts, such as employment contracts, loans, or vendor contracts, businesses may desire to incorporate. Being independent legal organizations, incorporated firms may execute contracts, borrow money, and own property. This allows a bank to secure a loan using the assets of the company rather than the owner’s personal assets. It also limits the owner’s personal responsibility in the event that anything goes wrong with a vendor or employee.

If a company has more than one founder or an outside investment, incorporating early on may help to clearly define ownership interests, financial interests, and management duties. Before investing money into a firm, investors often need it to be incorporated. These interests and obligations will be described in the official incorporation papers, such as the Articles of Incorporation and Corporate Bylaws or Operating Agreement, which will assist to prevent misunderstandings.

Lastly, before recruiting personnel, you should incorporate your home company. Since several difficulties might develop in the employer-employee relationship, you can safeguard your personal assets from an employee’s acts or faults, or from your mistakes in managing workers, by confining responsibility to the assets of the business or LLC.

Can I start a company while working full-time?

In general, starting a business is lawful even if you work full-time for another firm. Yet, your Employment Contract or your employer’s regulations may prohibit you from establishing a company or taking on additional work. Although it is legal, there may be ramifications for your day job if you are not cautious.

Moreover, your Employment Contract or an Invention Agreement may have an influence on who owns your ideas or discoveries. As an example, if you build a new computer program as part of your side company, your full-time employer may claim ownership of that innovation despite the fact that you generated it for your side business apart from your full-time employment for your employer.

Moreover, your job may be subject to a Noncompete Agreement, which prohibits you from working in an area comparable to your full-time employment while you are employed, and sometimes for a period of time after you leave. Knowing what you can and cannot do is crucial, as you don’t want to provoke a lawsuit or lose your solid work just as you’re getting started.

When should I establish a business place outside of my home?

A home company with all the freedom of working from home may seem perfect, but it does not always succeed. When your company grows, you may discover that a home office is too tiny or a distraction; it may also be unappealing to potential workers, partners, customers, or clients.

Moreover, zoning rules and local bylaws may prohibit you from developing, providing certain services, or running particular sorts of enterprises from your house. If the company has the resources or generates enough income to justify a physical presence, even if it is merely a shared office space, the investment may frequently pay off handsomely.

When a company intends to relocate, the following factors should be considered:

This old saying is true: location, location, location. The location of a company is critical.
How much room do you need right now? How much room will you need in six months? Can your location expand along with the company?
Rent or buy—When a company is just starting out, it may only have enough money to rent office space. But, when your business grows or if you have extra cash, you may want to explore owning a space or building. If you’re thinking about purchasing, don’t forget to include in property taxes to get a sense of the real cost. You should also consult with a lawyer to determine if the transaction is beneficial for you or the company.

Is it allowed to hire somebody to work in my garage or at home?

Employees may be required to work at your house if you run your company from home. This is lawful, albeit you may be required to follow federal and state labor rules, such as the Fair Labor Standards Act (FLSA). Overtime, minimum wage, and recordkeeping, for example, will be covered by the FLSA and state regulations, as well as many other obligations for qualifying companies.

State law may also impose obligations for employing workers or independent contractors to work in your house, just as it would at any other workplace. To have staff present, you may need to offer a bathroom, safety equipment, particular signs or posts about the legislation, and other other criteria. Before recruiting staff to work out of your house, consult with a skilled attorney about your state and local labor regulations, and consider incorporation to shield yourself from liabilities.