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Homegrown, But Not Legally Safe: What Founders Overlook When Running a Business from Home

  • Writer: Krystle Oshon
    Krystle Oshon
  • Apr 25
  • 4 min read

By Krystle Oshon

Image Credit: Pixabay
Image Credit: Pixabay

 When you picture a startup, you might think of a garage in Silicon Valley or a coffee-fueled brainstorming session in someone’s kitchen. In today’s economy, many businesses are still launched at home. It seems harmless enough. There are no office leases, commutes, or overheads beyond Wi-Fi and hustle. But that sense of ease can be dangerously misleading.

 

Take Monica, for example. After losing her corporate job during the pandemic, she started a home-based candle business. Her products went viral, orders exploded, and her apartment filled with inventory and packaging materials. But things took a turn when her landlord issued a cease-and-desist letter. Monica’s lease did not allow for manufacturing or increased deliveries. Worse, a small fire damaged her supplies, and her renter’s insurance wouldn’t cover any of it because the losses were business-related. Tax season revealed even more trouble. She had claimed a home office deduction without understanding the IRS rules, putting her at risk for an audit.

 

Monica’s story is more common than you might think. Many home-based founders underestimate the legal risks associated with doing business in their community. This blog post breaks down what every entrepreneur needs to know before building their empire from the comfort of their living room.

 

Zoning and Local Ordinances: Is It Even Legal Where You Live?

Many cities and towns have zoning regulations that limit or prohibit certain types of businesses from operating in residential areas. You may need a special home occupation permit or be entirely banned from manufacturing and shipping goods from your home. Some jurisdictions also limit customer foot traffic, signage, and delivery volumes.

 

Before launching, check with your city’s planning department to ensure compliance with local regulations. Some jurisdictions still require registration or notification, even if your business is online-only. Don’t assume it’s fine because you’re not running a storefront.

 

Lease and HOA Restrictions: What Does Your Agreement Say?

If you rent your home or live in a community governed by a homeowners’ association, there may be rules restricting business use of the property. Some leases ban commercial activity entirely. Others might allow it only if the business doesn’t increase traffic, noise, or deliveries. Violating these terms may result in eviction or fines.

 

Review your lease or homeowners’ association (HOA) agreement carefully. If you are unsure, consult with your landlord or HOA board before proceeding.

 

Insurance Gaps: What Happens If Something Goes Wrong?

Most homeowners’ and renters’ insurance policies do not cover business-related losses. That means your laptop, inventory, or even client injury claims could be denied if you only have personal coverage.

 

If your business has physical goods, client meetings, or equipment, you likely need a home business endorsement or a separate commercial insurance policy. It’s a small cost that could save you thousands.


Image credit: Pixabay
Image credit: Pixabay

Taxes and the Home Office Deduction: Don’t Assume You Qualify

The IRS allows a home office deduction, but only under strict conditions. You must use a portion of your home regularly and exclusively for business purposes. That means no using your kitchen table part-time. Misusing this deduction or failing to track business use accurately can trigger audits and penalties.

 

Track expenses, document square footage, and consult a tax professional before claiming the deduction. It can be a legitimate savings tool, but only if done correctly.

 

Health and Safety Laws: Not All Products Are Home-Friendly

If you’re making food, skincare products, or candles at home, you might need to follow strict state or federal health regulations. Some states ban home production of certain goods unless you have a separate kitchen or have passed inspections. The FDA and local health departments may have overlapping rules.

 

Check cottage food laws and product-specific requirements in your state. Ignorance of the rules won’t protect you if a customer is harmed.

 

Licensing and Registration: Just Because You’re Small Doesn’t Mean You’re Exempt

Even solo entrepreneurs must register their businesses in most states. This often includes obtaining a business license, registering a fictitious name (DBA), and renewing permits annually. Some jurisdictions require all businesses, even home-based ones, to pay local taxes or fees.

 

Failing to follow these steps could result in penalties, back taxes, or forced shutdowns. A few hours of paperwork upfront is a small price to avoid future issues.

 

Client and Delivery Risks: When Your Front Door Becomes Your Office

Allowing customers or vendors into your home creates liability. If someone slips and falls, your personal insurance may not cover the incident. Regular deliveries may also raise red flags with landlords or neighbors.

 

Consider alternatives like PO boxes, co-working spaces, or meeting clients virtually. If clients do visit, consult your insurer about liability coverage.

 

Conclusion: Just Because You Can, Doesn’t Mean You Should

Running a business from home offers flexibility and affordability. However, those benefits do not eliminate the legal risks. What seems harmless initially can quickly unravel if you’re not paying attention to zoning laws, insurance gaps, and contractual obligations.

 

Founders who do their due diligence now are more likely to succeed later. Take the time to review your legal exposure, obtain the proper permits, consult with your insurer, and establish a foundation that can grow with you. Your home may be the starting line, but your business deserves a structure that can go the distance.

 

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