Kankakee, Ill. -- Dialing into SBA Online (800) 697-4636 recently, I discovered a series of files (the Small Business Success Series) regarding setting up and running a business. From a sole proprietorship to a corporation, home-based or storefront, these files are easily copied to screen or downloadable.

In Volume 2, I learned that Apple Computer, Hershey Candy Bar, Mary Kay Cosmetics, Ford Motor Company and Hewlett-Packard all started out as home-based businesses. We home-based entrepreneurs may not grow to their size, but we indeed are in good company. This file also explained the various choices for the legal status of a home-based (and otherwise) business. As with any business decision, always consult an attorney and a certified public accountant regarding your rights and responsibilities.

Legal Status. Sole Proprietorship - the easiest to set up, but with probably the most liability. The Sole Proprietorship is the least costly, least regulated type of business. Literally, the owner decides on a location, opens the door and starts the business. There are fees to register the business name and possible legal fees regarding zoning, and depending on the city/village the business is in there could be a business license to purchase.

The Sole Proprietor has total responsibility and control of the business, its projects, clients and operation. However, s/he is also personally liable for all claims, taxes and debts against the business and for injuries caused by or to employees during employment. The owner is entitled to all profits made in the business and is required to claim all on the individual income tax return. The owner also gains income tax and Social Security advantages. In the event of legal action, the assets of the owner are exposed to litigation.

Partnership - In a General Partnership, each partner is active in the management of the business and shares in its gains and losses. R. Robert Rosenberg & William G. Ott, in College Business Law, 4th edition, tell us that a partnership is "the merger of the capital and talents of each partner going into the business."

A partner is an agent for all the partners and is allowed, unless otherwise specified in the agreement, to sign contracts which bind other partners, even if they disagree with the decision. Although a partnership can be formed verbally, this is not recommended. It is always wise to engage an attorney to draw up an agreement between all partners outlining specific duties and rights of each.

Each partner can hire/fire employees, borrow money, operate the business. All partnership income must be reported on Form 1065, with profits included in each partner's individual tax return. Each partner is personally liable for debts and taxes and personal assets can be subject to attachment and liquidation if the partnership itself cannot satisfy creditors' claims.

In a Limited Partnership, partners do not share in the management of the business, and the liability is limited to the amount the partner has invested.

Corporation - A Corporation is a legal entity separate from its stockholders. The most costly to form, a corporation does limit personal liability for the debts and liabilities of the business. There are several types of corporations, including Subchapter S.

According to SBA Online, even though the liability in a corporation set up is limited, "with many new businesses this limit of personal liability applies only to judgments brought against the company for negligence, defective products or frivolous suits."

A Subchapter S Corporation eliminates double taxation; no corporate taxes are paid on income. Even if the funds are not distributed as salary or dividends to them, the stockholders pay taxes. However, they can deduct any net operation loss sustained by the corporation on their individual tax returns.

Steps to Take. Since your decision to go into business has been made, now you must take the next steps in the process. Have you a name for your business? Try to keep it a brief explanation of the type of product or service you offer. Choose the location and decide the address for correspondence and deliveries. A PO Box or a shipping outlet which rents mailboxes as well as accepts/sends shipments via UPS and FedEx are considerations. Are you selling from a website? Be sure the address is highly visible along with an e-mail address, fax number and telephone number. Include mobile or pager numbers for further convenience.

A business checking account is preferred by the IRS and will help you keep profits and losses clear. Smaller banks that are business oriented can set up a checking account with minimal to no fees and no minimum balances. Some banks and credit unions require a Federal Employer Identification Number (FEIN) to open a business account, even if you do not have (or plan to have) employees. Others will use your Social Security Number. The IRS has an information packet for business start ups including forms and booklets that are of assistance.

The next stop will be at your county or city planning commission or city/village administrator's office. This can be in person or via telephone. You will need to know the zoning laws regarding signs and employees, especially for the home-based business. If you can hire an employee to work in your home you may need to apply for a conditional use permit. Do not avoid payroll and other taxes. Check with the IRS regarding Independent Contractors (IC) and the guidelines.

Talk with your insurance agent, if you are the homeowner, about adding a rider to your existing policy for your home-based business. Policies and umbrella policies are available to homeowners and renters alike. Renters may want to discuss their plans with the landlord. Insurance to consider in addition to liability, is key man, errors and omissions, policies to cover ICs and equipment.

Some fees will accompany your decision to start your business. One is in regard to the Assumed Name Act, in the event your business name does not include your own name. It is the "d/b/a" (doing business as) designation. Information can be obtained from the County Administration Office. The County Clerk's office can guide you to the correct department.

There is a filing fee for the form, then a legal notice to be published for three consecutive weeks stating the name of the owner(s), and the business, the location and type of business. After the third publication, the notice is taken back to the county office and a certificate of ownership of business will be issued.

If you plan to incorporate, check with the Secretary of State's office for information on filing Articles of Incorporation and conducting a name search to avoid duplication.

Some cities/towns charge a nominal (to ridiculous) fee for a business license(s), while others do not require them. The City Clerk's office can answer this question for you.

Basic equipment which nearly all new business can require can include: desk, lamp, chair, computer, printer, fax, copier, answering machine or service, voice mail, pager, cellphone, coffee maker [!], headset for answering telephone calls or cordless phone, calculator, radio, reference books - from general business to specific to your field choice.

Working from Home. This can present its own special set of problems from isolation to boredom to working many more hours than one should at a time, to a lack of self-discipline.

SBA Online suggests some solutions: study the characteristics of successful business owners and decide whether your personality traits, experiences and values are similar. Assess your experience, skills and life goals. Do you still want to invest the energy, time and resources that successful entrepreneurship requires?

Take a self-survey of your reasons for wanting to establish a home-based business: are you unhappy with your current job? Do you have skills that could be put to better use? What is your experience in the business you want to start? What resources do you have that could be put to good use?

Keep in mind that the buck stops with you.

One former home-based business owner has returned to corporate life because "being the boss means taking ultimate responsibility for all decisions. You get the credit when things go right but you get the blame when things go wrong."

Duh, no kidding. This is the prime example, in my opinion, of a person who decided to stay at home and earn money, sat around waiting for the phone to ring, didn't check quality in his work and then wondered why he failed.

You won't follow his example, will you?!

Ronda L. Claire, is owner of Starlight Creations, Kankakee, Illinois. Ronda has been a home-based business owner since 1994, and established and published a newsletter for home-based (and otherwise) self-employed people since 1998. She has loved to write since childhood and has worked as a print reporter and correspondent for weekly and daily newspapers. Ronda loves being home-based in business and sharing her experiences with others who are or wish to be for their education and encouragement. She has a chat room on TalkCity.com and those who e-mail her will be notified of scheduled chats.  

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