Choosing a Business Entity

Like any business owner, a self-employed personal trainer faces a number of financial, legal, and marketing considerations. Whether you’re teaming up with a partner, joining together with the band, or going solo, determining the right type of business entity for your situation is an important early step.

Some of the main reasons that choosing the proper business entity, or legal structure, is that it affects how much is paid in taxes and the extent to which an individual is personally liable in a company.

What’s Your Plan?

Any business move should have a well thought out plan, often divided into intervals of several years.

Before deciding on a business structure, the basic groundwork should have been considered already. This means that:

• The product and/or service is clear
• There is a market for the product and/or service
• The competition has been assessed
• A location has been determined
• Start-up costs have been analyzed and funding is available.

It’s important to consider that situations may change, such as moving from a partnership to single owner, so plans should be flexible enough to allow for such contingencies.

Types of Business Entity

There are four main types of business entities in the United States. Let’s look briefly at each.

Sole Proprietorship – This structure involves company ownership by an individual or married couple and no one else. When the business is comparatively small, a proprietorship is the simplest type of business. For the purpose of reporting taxes from income, a sole proprietor’s income from his or her business can be listed on an individual income tax return. This type of business entity is very common, due largely to the relative ease in which it can be formed, operated and managed as well as the fact that there is typically less legal regulation than other forms. It is important to keep in mind, however, that in a sole proprietorship, the business owner is personally liable for all debts the company incurs.

Partnerships – A partnership includes one or more people who will share the profits and losses of the business. Partnerships are inherently more complex than a sole proprietorship because more than one person (or couple) is both directly involved in and liable for the business.

For the purposes of declaring a business entity, partnerships come in two forms: general and limited.

• General Partnership – This type of entity requires partners to manage the company jointly and assume responsibility for the debts of the business. In this form of partnership, partners may act on behalf of the business and make decisions such as applying for loans. However, general partnerships may not afford personal asset protection that is separate from the business.
• Limited Partnership – This form of partnership recognizes investors who provide investment, but who exert no control over the company.

Corporations – A corporation is an entity larger than either a sole proprietorship or a partnership. Such as business often has employees and may offer benefits. From a liability standpoint, a corporation legally separates business liability from an owner’s (or owners’) personal liability. There are two types of corporations: the S-corporation and the C-corporation. The main differences can be divided into issues of taxation, ownership and liability. Corporations are often complex ventures, and those interested in pursuing a business as a corporation are advised to seek out the help of legal and accounting experts.

Limited Liability Company (LLC) – In some ways, an LLC can be thought of as an amalgam of some of the features of a sole proprietorship, a partnership and a corporation. There is no a minimum number of people needed to form an LLC. However, if someone elects to go this route as a sole owner, he or she must be careful to conduct and document business carefully in order not to be considered a sole proprietorship. As the name implies, liability is limited because the law recognizes the business as separate from an owner (or owners’) personal assets. So, if an owner is subject to lawsuit or has business debts, his or her personal assets are protected.

Conclusion

This article should be considered an overview only. It is advisable to seek the advice of legal counsel and a certified public accountant in deciding which type of business entity is right for your situation.

References

1.

2. The Business of Personal Training. Roberts, Scott. Human Kinetics, Champaign, IL. 1996