An important factor to consider when forming an LLC is where it will take place and be legally situated. Having an official place of business can be very beneficial, but many people might be limited with options and may consider using their home address.
Using a home address for an LLC is fine in many cases. However, the decision to use a home address for a business does come with its own set of advantages and disadvantages. Firstly, the option to use a home address may not be available to some business owners depending on the zoning restrictions or Homeowner Association (HOA) rules.
Can You Use a Home Address for an LLC?
Using a home address for running a business might seem like an appealing concept to many business owners as the setup would mean they can save additional costs from having a different space altogether. However, can people register LLCs using their home addresses?
They absolutely can, however, depending on where they live, it may not be possible.
Note: It is possible to use a virtual address as your business address.
Homeowner Association (HOA)
The HOA is a committee that creates and enforces rules for the properties and residents living in subdivisions, planned communities, or condominium buildings. Not every home is part of a community that has an HOA, but numbers estimate that individuals living in the US have a one in five chance of living in a home that is part of an HOA.
Since the HOA creates rules that cover the local community, an interested entrepreneur must make sure that registering a home address for an LLC is in accordance with HOA rules. Given the HOA is typically composed of neighbors and peers, the HOA is not an entity that one cannot negotiate with. Especially if the business will not involve dealing with the public or bother other residents.
Beyond the HOA rules, a more important jurisdiction to cover is zoning restrictions. Imposed by municipal code or whatever local government presides, zoning restrictions can strictly delineate properties for residential and commercial purposes.
It is especially important for business owners to be familiar with the local zoning laws to make sure they are allowed to run their business from the comfort of their home.
Fortunately, determining the legality of operating an LLC out of a home can be as simple as contacting an informed individual in the local government such as a city coordinator. Local attorneys should also be well aware of the zoning laws that govern the area.
Considerations for Using a Home Address for an LLC
There are both advantages and disadvantages to running a home-based LLC like liability and privacy concerns, as well as tax deductions and costs.
One big advantage of registering a business as an LLC is that the members (the owners of the LLC) are given limited liability protection. Since the LLC is a legal entity in itself that can run the business and hold assets, the personal assets of the members such as property, cars, and bank accounts are separate and therefore protected in case of financial obligations and burden. Essentially, the personal assets of the members are not at risk if ever the LLC is sued or bankrupt.
However, when the LLC is run from a home address, liability issues might come up. While the LLC is indeed a separate entity of its own, running an LLC from a home address might blur the lines between the assets of the LLC and the assets that are technically personal belongings of the business owner. Using the home address potentially pierces the corporate veil that the LLC is supposed to protect.
When running a business with a physical address, the address is available to public knowledge. Additionally, some businesses would do even better if that knowledge was made more public – the very reason why businesses invest in marketing and advertising; Visibility is an important factor for these businesses to thrive.
However, it is a different story when that address is someone’s home address at the same time. This raises a significant privacy concern as their home address essentially becomes public knowledge. This risks the privacy of everyone living in that residence. Vandalism and other malicious threats occurring in business addresses are significantly different when they happen to a home address.
The home is not typically seen as a place of business and therefore the professional reputation and credibility of a business based in a home address might not come so quickly. It can be earned after the satisfactory delivery of a good or service, but it is an obstacle nonetheless – one that is not present if the business were to have its own permanent address.
Advantages of Running an LLC at Home
Possible Tax Deductions
When running an LLC out of a home address, it is possible to get tax deductions in the event that the operation meets certain criteria. The tax deduction will allow business owners to deduct a percentage of the home-related costs as a business expense. The terms of home-related costs are quite flexible and can be used for rent, mortgage interest, or even utility costs.
However, tax deductions can only be applied if a part of the home is used regularly and exclusively for the LLC operation. Regularly and exclusively implies that a particular space in the home address is consistently used for work and is not used for anything personal. The home with the registered home address should also be the principal place of operations which include the conduct of administrative and management duties.
Other ways to delegate the home as the principal place of business is by meeting clients at the home or by running the business in a separate building or structure contained within the property.
A logical advantage of running an LLC out of a home is the lower cost relative to running a business somewhere else. This is considered to be the main appeal for many new business owners as the cost of renting out a different space can be saved and even rerouted to the capital and startup costs.
Many examples can be cited of highly successful companies starting out from their very own homes. It is also ideal to operate a new business in a space that will not loom additional rental fees every month.