Can a Self Directed IRA start a business?

Technically, the answerer is YES. However, the IRA Club cautions against such a transaction.

Starting or buying a business inside an IRA can be complex. The business will likely incur Unrelated Business Taxable Income (UBTI). In addition, there is the possibility that the IRS may find that you, as the IRA owner, are receiving undo current benefit from the business, which would result in the dissolution of the IRA.

The concerns are greatly reduced if the IRA’s ownership of the business is “not significant”, generally considered to be a 25% interest or less.