What is the Best Business Entity for Coaches?
When you are starting a coaching business there are literally a thousand things to think about…things like, what is niche? Who is my ideal client? Do I have to have a website? What social media platform should I focus on?
And this doesn’t even include some of the business foundational things (you know, the fun stuff) like legal, taxes and accounting (oh, my!) I could write 80 blog posts on the various legal questions I know you are asking yourself as you build your coaching business…things like, what is a privacy policy? Can’t I just copy my friend’s contract? Do I really need a contract? What is a disclaimer? How about a Limited Liability Company?!
Oooh LLC - this is a question that comes up a lot and what we are going to be diving into today. Business entities ARE important and I know they trip a lot of people up. But here’s the thing, when you are starting your business, it’s not the first thing you need to think about. It’s not the thing that provides the most protection.
That my friend, is a coaching contract - which is the MOST important thing you need to think about when starting out. More on that in this blog post.
But registering your company as a business entity is an important step and something that should be done within the first 6-12 months of your business - once you are sure this side hustle is going mainstream and is really something you plan to focus on. Why? Because they are pretty cool in that they help separate your personal and business assets and keep those personal assets (e.g., house, car, moolah) separate from the business in case of a legal issue.
There are a variety of options when it comes to becoming an entity - stay a sole proprietorship? Register as an LLC? What about a corporation?
Here are 3 reasons why registering as an LLC is my choice for coaches
*note: this is not legal advice and you should make this decision with your accountant or tax attorney*
1. LLCs PROTECT YOUR ASSETS
This is probably the most important and deserves another mention: LLC’s do a great job of separating assets in the case of a judgment against your business. This means that if you run into a lawsuit and have to pay out a bunch of money, the court can only go after what is in your business bank account, they can’t come over and repossess your car or your home.
AND the same thing on the other side, if you are going through some issue in your personal life, it can’t cross over into the business side. Having an LLC keeps these lines drawn and makes it easier to get a business bank account so everything is kept separate (which is important…the more you mingle the more there could be an issue).
2. LLCs MAKE YOU FEEL LEGIT
I’ve heard it at least 100 times. “Sarah, I just registered my LLC, I feel so official now!” It’s true, once you are officially a business entity, shit just got real! While it is technically true that remaining as a Sole Proprietor is a business entity, you don’t have the same legal protections and don’t have to go through the same legwork to process, so it doesn’t feel quite as official.
There is something about going through the steps of
→ naming your business OFFICIALLY
→ determining your place of business and where you receive documents
→ paying the state
Once you have filed and are officially incorporated well you feel more…official. And now your contracts, website and all official documents have the LLC on there as well. There is no more hiding, you are a business and ready to take on the world!
3. LLCs ARE EASIER AND YOU CAN FILE THE PAPERWORK YOURSELF
One of the reasons I think most (if not all) online businesses should start out as an LLC is that it is something you can do yourself, without an attorney. It’s a pretty straightforward process in most states and we even have a great guide to walk you through each step - check it out below.
Deciding to become a corporation (a C-Corp or S-Corp) is a big deal and they are way more complicated. And what’s the big difference? PAPERWORK. For realz - corps have a lot more paperwork. But there are other differences as well. Unlike a corporation (S-Corp or C-Corp), in an LLC there are no annual meeting or minute requirements, limits on membership, and profits/losses are passed through to the owner’s tax returns.
This “pass through” taxation means members of the LLC report their profit and loss on their personal tax forms and the business itself is not responsible for taxes on its profits (but usually means more taxes). * NOTE - I AM NOT A TAX ATTORNEY AND GET JUST AS CONFUSED ABOUT TAXES AS YOU DO :)
The corporation benefits don’t really kick in unless you are making A LOT (a lot) of money.
If you are a small biz owner, starting as an LLC is always a great choice - you can always choose to be taxed as an S-Corp later which may save you $$ if you are making more than $100K.
LLCs usually end up paying more in taxes but unless you have some predictability on your income, S-Corp isn’t likely for you (meaning you should be making over 100K before thinking about this and then go talk to a tax attorney and accountant).
C-Corps aren’t really for us, those are for BIG ASS companies. If you have questions on taxation, chat with a tax attorney or your accountant! But in the meantime, if you are ready to form your LLC, check out Happy Hour Your LLC over here.
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