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Stepping into the unknown can be a daunting task, and starting a home microgym is no exception. There is much to consider in beginning any business, and one of the first considerations is what form of business you should choose. So, when forming your home microgym and deciding between sole proprietorship vs. limited liability company (LLC), which is best? We have some thoughts on this topic and will help get you on the right track.
First, let's define each before deciding which route to take. A sole proprietorship is a business with a single owner who pays personal income tax on profits earned. The company is the business owner, and there is no separation. It is the most simple form of business and the least expensive. About starting a microgym, this would mean that if John Doe starts a microgym as a sole proprietor, then John Doe and the microgym would be considered the same in the eyes of the IRS. There's no legal separation of the business from the owner. Additionally, income and expenses are reported on a Schedule C (Form 1040). For more on C Schedule's, go here.
Indeed, running your business as a Sole Proprietorship makes sense for someone making a modest income nannying, mowing lawns, or doing work as a handyman. However, if there is a chance that revenue could be significant, or if you are at increased risk for lawsuits, consider forming your microgym as an LLC.
An LLC is harder to define, but suffice it to say the legal structure creates some separation from the owner(s) of the gym. By design, they allow for the legal separation of business from the owner(s). In practice, and among other things, it will enable the business to hold assets (such as gym equipment) and take out loans. This separation means that if the company were sued or required to file for bankruptcy, only the business assets and liabilities would be in question, not the owner's personal property.
Additionally, an LLC is formed under state law, and owners are called members. There isn't any limit in most states on how many members can join one company or organization, nor do they typically restrict who an owner can be. Owners can be other corporations, other LLCs or foreign entities.
Ultimately, home-based microgym owners will want to consider an LLC as the best method to operate. The main reason for this is to separate yourself from the business that legally will bear the weight of any lawsuits.
LLC's also have the most flexibility when it comes to deciding on compensation structure, internal hierarchy (when there are employees and owners), tax structure, etc. This is especially advantageous when wanting to be a single member or multi-member LLC. For example, there are tax strategies best suited for a married couple, and with an LLC, both can be owners in the company, rather than just one person. Learn more about what an LLC is here.
To make the best decision, you should consult with your CPA or accounting professional. Here is a helpful article on how to form an LLC. Ultimately, however, the choice boils down to whether you want to do the legwork yourself or use a service like LegalZoom or Zenbusiness.
Should you choose to file the paperwork yourself, definitely check out that link we provided. But if you are anything like me, you're always looking for affordable ways to get a professional to do the work for you. My wife and I have started three businesses now using ZenBusiness. They make it so easy! Here are some of the things you can expect when filing your business through ZenBusiness.
Use the link here to get up to 25% off your filing fee with ZenBusiness.
Starting a small business can be a bridge too far for some, but there are legal structures to protect your assets and companies that will help you along the journey from start to finish. If it's fear that's preventing you from making your dream a reality, let that drive you forward. We're here to help!
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