Using a home address to incorporate a business is something many entrepreneurs think about doing. That’s understandable because most start their businesses in their homes. After all, avoiding business rent and real estate costs and eliminating a commute can help a company turn a profit faster as it ramps up. But if you use a home address when incorporating a business or forming an LLC cause any issues for you as a business owner? Let’s explore that question to give you an idea of what you should think about when weighing the pros and cons of using your home address as your business address. What I am about to share here is not professional legal or accounting advice, so I encourage you to talk with your attorney and accountant or tax advisor for guidance in making decisions for your business.
Using a Home Address to Incorporate a Business
Sole proprietors and professional services businesses often don’t have a separate business location. And when they decide to incorporate or form an LLC, they see using a home address to incorporate a business as a simple solution. Some business owners might have no problems when doing that, but others may discover doing so will expose them to legal issues and other downsides.
Here are some things to consider about using a home address to incorporate a business:
Privacy and Security
Using a home address as a business address can create privacy and security concerns for business owners.
When a business is registered as an LLC or corporation, it’s required to designate a registered agent. A registered agent is an authorized party (within the business’s state of registration) that will receive service of process notices and government correspondence on behalf of the company.
If a company appoints an owner as its registered agent, that person’s home address information becomes publicly available in state records. In most states, an LLCs or corporation’s registered agent history also becomes part of public record. So, it’s worthwhile for entrepreneurs to consider appointing a third-party registered agent from the start if they want to avoid putting their home address out there for all to see. Having a third-party serve as a registered agent can also prevent embarrassment to a business owner’s family if ever if the company is sued. If the home address is the registered agent address, the summons will be served at the entrepreneur’s house. And no one likes to give neighbors a reason to speculate and gossip!
Another way using a home address can cause privacy issues is when it’s used on a business’s website and in other marketing materials. With the address out there online, it’s available to everyone everywhere. It might result in unwanted junk mail and unexpected home visits (such as from salespeople, unhappy customers, individuals with ill intentions).
Piercing the Corporate Veil
Companies registered as an LLC or corporation must make sure they keep the owner’s personal finances and activities separate from those of the business. That corporate veil protects a business owner from the legal and financial liabilities of the company.
Having personal and business bills and mail come to the same address doesn’t classify as commingling in and of itself. But business owners must make sure that they pay personal bills with personal funds and business expenses with business funds.
When using a home address to incorporate a business, failing to maintain that separation could result in a court ruling that the corporate veil has been pierced. That means the business owner may find that personal assets (home, car, bank savings, retirement accounts, etc.) could be used to settle legal disputes or debts of the company. With one of the primary benefits of forming an LLC or incorporating being limited liability protection for business owners, it’s critical to maintain separation between business and personal financials, contracts, activities, and assets so that it’s clear the business exists independently of its owner(s).
Zoning laws vary, so business owners should check with their municipality to make sure they’re allowed to run a business from their home. Local ordinances might exist that restrict running commercial operations out of the home. Those restrictions might only affect certain types of home-based businesses or all business operations regardless of what they do. Before using a home address for an LLC or corporation (or any other business entity, for that matter), it’s critical to understand whether it’s legal to run a business from a residential property.
Lease Conditions and Homeowner Association Rules
People who rent an apartment or house and those who own condos must follow the rules set by their landlords and homeowner associations. That’s why it’s important for entrepreneurs who want to start a home-based business to check the terms of their lease or homeowner agreement. In either case, it’s possible restrictions have been included in the contracts to prevent unwanted noise, increased traffic, parking issues, and other disruptions that might not sit well with neighbors or the surrounding community.
In some cases, landlords and homeowner associations might be willing to bend the rules and allow a home-based business if the business owner can demonstrate that it won’t create any issues for the property owner or managers. For example, if a professional services provider only works with clients at the customer’s location or remotely, that business owner might get the green light since the public and other residents wouldn’t be bothered.
Some customers might perceive that an entrepreneur who is using a home address to incorporate a business is less professional or serious than one who has a unique business address. Hopefully, most people aren’t that judgmental. However, in some instances, it might mean the difference between them choosing to do business with one company over another.
Alternatives to Using Your Home Address as Your LLC or Corporation Mailing Address
Options exist for business owners who can operate their LLC or corporation from their home legally, but who don’t want to publicize their home address.
One alternative is to ask the local post office for a P.O. box. Some post office locations also offer USPS Street Addressing Service. This service assigns a P.O. box and then uses the post office’s street address and the P.O. box number to create a real address for the business.
Another option is the UPS Store’s Mailbox Etc. service that provides a mailbox (that’s accessible 24/7 at some locations) and a real address. According to the UPS Store website, “Your mailing address will be the address of The UPS Store location, with either PMB (private mailbox) or the pound symbol (#) designating your individual box. Instead of “The UPS Store,” your name appears first.”
Keep in mind that these address alternatives aren’t usually suitable as a registered agent address in using a home address to incorporate a business. Usually, that requires a physical address in the state of formation (or where foreign qualified). Also, a registered agent must be available during normal business hours to receive service of process for the LLC or corporation.
”Homing” in on What’s Right for Your Home-Based Business
As I mentioned at the start of this article, it’s imperative to get professional legal, accounting, and tax guidance before making crucial decisions.
CorpNet, of course, is here to assist you after you’ve made those decisions. No matter which state you’re forming or foreign qualifying your business in, we can help you prepare and submit your registration paperwork. We provide registered agent services in all 50 states, as well, so our address within your state goes on public record, keeping your home address private.
Contact us today to learn more about how we can help you with your business filing needs!