Do CrossFit Gyms Need an LLC?
One of the most important decisions you’ll make as a CrossFit gym owner or affiliate involves choosing the right business structure or formation. Believe it or not, there’s a cost to be the boss and the right structure is essential to minimize the work, time, and financial commitment necessary for success.
The wrong structure can take your business out of the running before it’s had a good chance to get up and running. The wrong business formation can have dire consequences for your personal assets as well. Before you make any decisions, review the following information to determine if your CrossFit gym can benefit as an LLC.
What Is An LLC?
First, it helps to have a good understanding of what an LLC is and how it may benefit your situation. An LLC is a limited liability company that at the most basic level is a pass-through tax entity.
The U.S. Small Business Administration states that another good aspect of incorporating as an LLC is that you can choose any of the following tax strategies.
- single owner status retains the same tax liabilities as a sole proprietor
- co-ownership uses the same tax liabilities as a partnership
- multiple members are taxed as partnerships
- S- or C- corporations have special tax considerations and liabilities
It is one of the simplest and most popular legal entities for new businesses, especially in the fitness industry. It offers flexibility and a myriad of tax benefits that many CrossFit professionals find most advantageous to their situations.
Limited Liability Protection: On the surface, an LLC looks a lot like a sole proprietorship. The primary difference is an LLC limits the amount and type of liabilities a business owner is responsible for (injuries, accidents, debts, etc.). A sole proprietorship does not and places liability on the owner and essentially leverages their personal assets as ransom.
An LLC offers protection for personal assets because it establishes the company as a separate business entity from the owner, according to the IRS. That means all business debts and most legal risks belong to the business. This is beneficial for many reasons, especially if you plan to have affiliates, trainers, or other professionals working at your fitness establishment.
For example, running your gym as a sole proprietor leaves your business and personal assets are at risk should any liabilities arise from employee misconduct. However, setting the gym up as an LLC means that any legal action or lawsuits that arise over a theft, accident, or some other matter only affects the business and its assets. Your home, car, and everything (personal asset wise) that you hold dear remain untouchable.
Also, without proper or comprehensive business insurance, your gym’s reputation and profits are at risk and subject to offset for any incurred liabilities regardless of its tax entity status. It also provides a safety net should you decide bankruptcy insolvency is the way to go.
Filing Fees: It costs money to start and run a business. When it comes to managing a CrossFit gym, an easy way to lower any startup fees is to consider incorporating as an LLC. Out of the different business formation entities, the LLC option is among the least expensive.
The filing process is not as extensive as it is for other business structures. Professional or legal assistance is not necessary to successfully file as an LLC but can be beneficial. Also, there is an annual fee to maintain active status as a limited liability company.
Credibility: Structuring your CrossFit business as an LLC gives it more credibility. Competition is fierce in the fitness world, especially when it comes to CrossFit. Operating as a limited liability gym shows customers/members that you’re serious about your business and by extension them. From the business standpoint, it makes your gym more authentic and less of a risk for lenders and can make getting approved for business loans, credit, and other financial resources easier.
Management Flexibility: Another benefit of becoming an LLC is the operational flexibility it provides. Anyone who is a member of the LLC can step up and make legal decisions regarding its daily operations. The lack of formal structure gives LLC owners more freedom, flexibility, and control over who makes decisions and the way the business is run.
Instead of having to rely on another member, a third party or professional can assume the owner’s responsibilities without penalty. This can be extremely helpful for new CrossFit gym owners who would prefer to have someone more experienced step in and take over while they learn the ropes.
There’s no need to go through different channels or run suggestions by a board of directors or other higher-ups. Of course, some jurisdictions require LLCs to be managed by their members unless there is documentation on file stating otherwise.
Tax Considerations: Structuring your CrossFit gym as an LLC gives it a pass-through tax status, according to Nolo. All business earnings are attached to the member’s personal tax profile, but instead of being assessed self-employment taxes, you only pay taxes on the profits. From a personal standpoint, all tax liabilities or debts belong to the business, not the owner.
As an LLC, you can take advantage of various business tax deductions and credits like lease payments, equipment, travel, CrossFit conferences, etc. to offset any tax liabilities to increase your gym’s profits.
Is an LLC Right for Your CrossFit Gym?
While there are obvious benefits to structuring your CrossFit gym as an LLC, is it required? No, it’s not, but it can be extremely rewarding by giving your business the flexibility it needs to overcome challenges and liabilities to enhance its credibility, profitability, and success. Though this type of business structure generally protects personal owner assets, it does have some limitations that can still leave your CrossFit gym at risk.