Starting a home business is a great way to launch a new venture as an entrepreneur. Currently, about 50 percent of U.S. businesses are home-based. Whether you want to invent a new product, sell homemade crafts or goods, start an eCommerce business or launch a professional services business like a consulting firm, there are many ways to use your home as a business headquarters.
But just because you’re working from home doesn’t mean you should ignore or avoid the legal process of making your business “official.” Home businesses still benefit from creating a legal business entity, getting a business bank account and becoming legitimate in the eyes of the financial system and regulatory authorities.
One of the first steps you should consider, even before you form an LLC or incorporate your business, is to figure out what you want to use for your business name. If another business is already using your preferred name, that might cause problems or delays with starting your business. You don’t want to get into a situation where you might be vulnerable to a lawsuit for using some other company’s name or infringing on a trademark.
Use Incfile's free Business Name Search tool to see if your ideal business name is available in your state. If it is, you can move on with other steps in the process of creating a business.
2. Form an LLC or Other Business Entity
Once you know what name you want to use for your business, now is the time to form an LLC or otherwise incorporate your business with a legal business entity. Just because your business is a home business doesn’t mean you have to go it alone without the liability protections and tax advantages of making your business “official” in the eyes of the law.
Forming a limited liability company (LLC) is a popular and simple step to take to build an official identity for your business that is separate from your personal finances. It can also help protect your personal assets (home, retirement funds, life savings) from some of the worst-case scenarios of a lawsuit against your business.
3. Consider Setting up a DBA
A “Doing Business As” name (DBA), also known as a “fictitious business name,” is another option to use for naming and operating your home business. Some business owners might want to have a specific name for their LLC and then do business under a different name, or they might want to operate multiple lines of business or services while having just one LLC set up for tax and banking purposes.
Most LLC owners don’t need to set up a DBA in addition to their LLC, but it is an option if you have some specific goals or strategic needs for how you want to operate your business. For example, if you want to start a home business where you sell household cleaning products and homemade desserts, you can name your LLC “Happy Home Enterprises, LLC” and then file a DBA for your separate online stores that sell desserts and cleaning products.
You can also keep your existing LLC and set up a DBA in the future as your business evolves. You don’t have to decide all of these things on day one of starting a home business.
4. Get a Registered Agent
Every incorporated business is required to have a Registered Agent. As a business owner, you are allowed to serve as your own Registered Agent. However, designating a different Registered Agent can give your home business a physical presence and a separate mailing address where official government documents and notices are sent, such as legal process in case of litigation and tax correspondence.
Incfile offers a free Registered Agent service for one year with any incorporation packages. Using a service like this relieves you of the hassle of being available at a physical location each day during business hours to accept correspondence.
5. Get an Employer ID Number (EIN)
One of the biggest legal steps in making your business official is applying for your business’s Employer Identification Number. An EIN is a tax ID for businesses. In the same way that individuals have Social Security Numbers (SSNs) that they are required to use on their tax returns, an EIN gives your business its own legal identity for tax purposes. Getting an EIN is also a requirement to apply for a business bank account.
After you form an LLC, you can file for a federal EIN. Incfile helps make this seamless and quick as part of our incorporation packages.
6. Set Up a Business Bank Account
Once you have a business name, an LLC or other legal business entity, and an official Employer ID Number, you can go to your chosen bank and set up a business bank account. Setting up a business checking account is an essential step in making your business official in the eyes of the financial system.
Key benefits of having a business bank account include:
Separating your personal finances and business finances
Receiving payments from customers in your business’s name
Writing checks and paying business expenses in your business’s name
Starting to build business credit to possibly qualify for small business loans
Maximizing your tax-deductible business expenses and saving money at tax time
Even if you are still in the early days of starting a home business, your business dreams don't have to stay “small.” There are many things you can do right now to make your home business “legal” and legitimate so you can start making serious money. Protect your home business with a legal business entity, a business bank account and all the other necessities.
Ben Gran is a freelance writer from Des Moines, Iowa. Ben has written for Fortune 500 companies, the Governor of Iowa (who now serves as U.S. Secretary of Agriculture), the U.S. Secretary of the Navy, and many corporate clients. He writes about entrepreneurship, technology, food and other areas of great personal interest.