We have received a lot of queries from our readers whether the “usual legal strings” apply to them if they start an Internet-based home business. They think that permits and licenses may not be applicable to them since Internet-based businesses (e.g. Internet marketing, web design) are typically low-key with no physical presence.

Operating under a business name, or having a "DBA" tag gives your entrepreneurial venture the professional look it needs. Unless you are the main selling point of your business (e.g. computer programmer, freelance writer), having a business name also makes it easier for customers to know what your business is all about. Going back to our earlier example, if I name my furniture store simply as John Doe, people will not know what I am selling. Hence, for easier recall, I need to name my business as JohnDoe Furniture Store.

Even on the Internet, customers find it easier to trust a web site when they know that they are dealing with a business entity. Greater credibility means more business for you. It also projects the image that you are serious in your endeavor and is capable of delivering your promised services.

For many self-employed, this part is oftentimes overlooked. You need to separate your personal and business expenses. Having your own account for your business is one effective way of doing it. However, you need to show proof of the existence of your business, normally your “doing business as” registration, if you are going to open a business account.

You do not need to formally file for any legal structure if you want to deduct your business expenses from your income tax. The IRS does not require that you show them any business licenses or registration. In fact, it defines sole proprietorship as “the sole owner of a business that is not a corporation.” You merely report your income and expenses from your sole proprietorship on Schedule C Form 1040, Profit or Loss From Business, or on Schedule C-EZ Form 1040, Net Profit From Business. If you use part of your home in your business, you should complete Form 8829. (source: IRS Web Site http://www.irs.treas.gov/tax_edu/teletax/tc408.html)

However, you also need to consider the tax advantages and disadvantages of each legal structure: sole proprietorship, partnership, C-corporation, S-corporation or limited liability corporation (LLC). Read the article ‘Choosing Your Legal Structure” at http://www.powerhomebiz.com/vol3/legalstructure.htm 

This is a growing concern on the Internet. While I am sure that you would want to avoid legal entanglements as possible, getting trademarks and copyrights for your business are your best way to protect yourself.

As for the process, the best thing is to visit your county government office and ask them for their requirements. Laws differ from state to state, from country to country. You just need to throw in a little effort in researching the legal requirements for small businesses in your area, and be willing to shell out a few bucks. The few hours that you are going to spend trying to get a formal identity for your business will surely go a long way. Check in with your lawyer or accountant what the best recourse of action for your type of business and personal circumstances.