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Home is Where the Business Is

The advantages of operating a business from your home need to be balanced against legal considerations that may not be as apparent. Attention to these matters at the outset of starting a home-based business can help you avoid legal pitfalls and can greatly enhance your prospects for success.

Business Organization

Your business may be a glorified version of a former hobby, but, as an ongoing business, the enterprise needs to take a legal form best suited to your circumstances. Factors such as tax issues, the number of employees (if any), and avoiding personal liability will influence the decision on a business’s legal structure. The most common choices are sole proprietorship, partnership, corporation, and limited liability company.

Zoning and Building Codes

A plan for a home-based business will stall if local land-use regulations prohibit a business from being run on property that is zoned “residential.” Just what qualifies as a “business use” under a zoning ordinance is not always clear, however, and home-based businesses may be permitted if certain restrictions or conditions are met. In a recent case, for example, a court ruled that a city ordinance allowed a professional office to be operated as a secondary use of a residence. As long as the business use of the property remained incidental to the dominant use of the property as a home, even other professionals or support personnel aside from the homeowner could work out of the residence.

When your home doubles as a business office, compliance with local building codes becomes a bigger issue. Features that may not apply to a residence can come into play, such as handrails or ramps for providing access for persons with disabilities. Your electrical system could need an overhaul in order to comply with the code, especially if the business requires computers or other technologies not typically found at home.


Because a fledgling business is vulnerable to financial injury from lost or damaged business property or injury to a client, it is also in need of appropriate insurance. Simply continuing your homeowner’s insurance without changes may not be sufficient when starting up an in-home business, especially since such policies generally are meant to cover personal property only. The simplest and least expensive solution may be to add a “rider” to an existing policy that covers business assets and liability. Another alternative is a new, separate policy covering anything related to the business.

The importance of having the right insurance is illustrated by a case in which homeowner’s insurance did not cover the medical expenses incurred by an employee who was injured on the premises of a home-based business. A married couple lived on the second floor of their home while using the first floor to house their construction business. They used an adjoining garage to store personal belongings. When a company employee was searching in the garage for company records, he slipped and injured himself. An exclusion in the homeowner’s policy for “business pursuits of any insured” meant that the injury was not covered under the policy.

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