Introduction Choosing a Legal Business Structure (Business Entity)
In this article series, you’ll learn answers to all of your legal business startup questions for starting a life coaching business, including:
- How to choose the right business entity for you! (Sole Proprietor, LLC, Corporation, Non-Profit)
- How to register a DBA (Doing Business As)
- How to register your business, as well as permits and licenses you might need.
- How sales tax works and how to collect it (if necessary).
- What type of life coaching business insurance you need.
- How taxes work, including pass-through taxes, corporate taxes, and the US Income Tax System.
*NOTE: Information in these videos does not constitute legal advice.
It’s important to consider what legal business structure, or business entity, will work best for you, when you are starting a new business or if you already have one but you haven’t yet considered if you need a business entity. It’s important to choose the right business structure for you, by considering the tax and liability consequences of your actions, from establishing your business to operating it and potentially, to ending it through a sale, dissolution, or even death. Strategically it’s good to have a clear strategy/plan for your business from the beginning, and to have a plan of where you want it to go, including how you will dissolve it when the end comes.
The information I will share with you it’s intended to help you choose the right business structure by giving you a rough overview of various options. Because I am not a professional accountant, nor an attorney, it is recommended that you seek guidance from a professional. They can give you the best understanding of the consequences of various options and they will guide you in the decision-making process.
Our students come not only from the US, but from more than 200 countries and in each country the business structures and the laws are different. I hope that you can take the description of each entity I present here, and apply the criteria to your available options and choose the best one for you in the country you will be doing business in. In the United States, in all states, the basic types of business entities available are: sole proprietorships, partnerships (general and limited), limited liability companies called LLCs, and corporations, including C corporations and S corporations.
The differences between these types of entities are straightforward and easy to understand. You is important to know that you can change your business structure in the future, if your business grows or develops new needs. For example, if you start your coaching business as a sole proprietor and later you expand your business by maybe taking on a partner you can easily create a partnership or an LLC or a corporation.
Because in this article I am just providing an overview, I want to touch a few general business structure distinctions:
- Businesses that operate as sole proprietorships or partnerships don’t legally exist separately from you, their owner. This means that if your business fails and owes money to creditors or someone wins a lawsuit against your company and the company’s assets are not enough to pay the judgment, you could find yourself paying with your house, your car or other personal assets. Depending on the situation and the state in which you’re living, your liability in these types of situations can vary.
- Businesses that operate as LLC’s or corporations are legally distinct from their owners and must be created by filing paperwork with the state in which the business is open. The owners of LLC’s and corporations are shielded from personal liability for business debts, which is one of the main reasons to choose these types of business structures. in other words, if a lender who did not get paid comes after the business assets of an LLC or a corporation, it cannot touch the assets of the owner.
- LLC’s and corporations differ from each other in how their taxed: LLC income or losses are typically taxed as personal income or losses of the owners (like in sole proprietorships or partnerships).Corporations pay taxes themselves, separately from the owners. An LLC could be taxed as a corporation as well, that’s why it’s important to have your accountant or attorney determine what the best options are for you.
I have created and tax and liability table for different business entities for you to refer to as needed.
|Type of entity||Personal liability||Taxation|
|Sole proprietorship||Owners are personally liable for business debts||Profits and losses tax on personal tax return|
|Partnerships||Owners are personally liable for business debts||Profits and losses are taxed on personal tax returns|
|Limited liability companies or LLCs||Owners are shielded from personal liability for business debts||Profits and losses are taxed on personal tax returns unless the LLC chooses corporate tax treatment|
|Corporations||Owners are shielded from personal liability for business debts||Corporation files its own tax returns and it’s taxed as its own entity|
Author: Sanda Kruger
Sanda is an entrepreneur, real estate investor, health coach and professional dancer. Sanda is an entrepreneur with more than 20-year experience in business development and project management in the fields of life, health and fitness coaching. She is also a real estate investor and a banker, who learned outstanding adapted business strategies, sales and marketing techniques, communication, and goal setting skills, hands-on, through life and work experiences. She is a certified fitness professional and is the creator of two original fitness programs, called BellyCore® Fitness and AquaCor®.