This is a Guest Post by Alex Levin, a writer specializing in the licensing and surety requirements for small businesses. When he’s not answering the question, “What is a surety bond?” he helps educate entrepreneurs about the types of surety bonds available.

Despite the passion, ambition and leadership skills that define it, many have wondered if America's entrepreneurial spirit is any match against the Great Recession. But, entrepreneurs are an optimistic—and adaptable—crowd. According to the Small Business Administration, the entrepreneurial spirit is alive and well in America's homes where roughly half of all businesses are based. They're faring well, too. Home-based businesses outlive their office counterparts over a three-year period. If you're thinking about joining the millions who operate a home-based business, then avoid the following legal pitfalls to keep your business on the path to success.


Choose the right tax classification. 

By far, the simplest option is the sole proprietorship. When you operate your business as a sole proprietorship, you'll have complete control over your business. You'll pay less to form the sole proprietorship, and you won't have to pay corporate tax. The downside is that your personal property will be at risk if your business is sued or goes bankrupt.

You can mitigate this liability if you operate as an LLC. As an LLC, your personal property is protected in the event of a lawsuit or bankruptcy. LLC's are more costly to start and require more formal business practices, such meticulous records and finances that are separate from your personal finances. If you are a one-person operation, your state may limit your ability to form an LLC, forcing you to operate as a sole proprietor, instead. For businesses involving more than one owner or at least one employee, you'll have to register as either a partnership or a corporation.


Know your city and county's zoning regulations. 

Regulations vary and can involve everything from restricting vehicles with company names in driveways to banning any business that greets a certain number of customers each week. Call your local and county governments for a complete list of requirements and regulations.


Obtain any and all licenses.

Some industries commonly need state licensing to operate regardless of whether the business operates from a home or an office. These include accountants, bill collectors, private investigators, among others. A few businesses may require federal licensing. Examples include preparing meat products and investment advising. Always check with offices for each level of government to find out your licensing requirements.


Get appropriate coverage in the form of insurance and surety bonds. 

The insurance that is most often confused with surety bonds is liability insurance. Like a surety bond, liability insurance addresses claims that arise if your business is sued for neglect.

One difference between liability insurance and surety bonds lies in the entity they protect. In case of a lawsuit, liability insurance is designed to protect you, while a surety bond is designed to protect your customer. In the event of a successful lawsuit, a surety bond pays the claimant, then seeks reimbursement from you. Liability insurance, on the other hand, pays the successful claim without requiring you to pay back the funds.

Some industries, along with some customers, require businesses to purchase surety bonds. For example, state's often require notaries to maintain a surety bond throughout the life of their business. Contractors often have to include a surety bond with each bid they win, while the federal government requires most of their vendors to purchase surety bonds regardless of their industry.

Passion and ambition are important qualities in a business owner. It's when you are thorough in your preparations, though, that you lay the groundwork for success.