There are several ways you may choose to organize your new business, including sole proprietorship, partnership, incorporation, or LLC. How you structure your business will determine the extent of your legal liability and decision-making capabilities. It will also affect how you are taxed and what write-offs you may take. Before you make a choice, you need to be clear about the advantages and disadvantages of each form of ownership.

Sole Proprietorships and Partnerships

Sole proprietorships and partnerships are similar entities, legally speaking. In a sole proprietorship, the business is owned by one individual who is personally liable for all debts and lawsuits against the business. In a partnership, the ownership and liability are shared by two or more people. The advantage of establishing these types of businesses is that they are simpler and less expensive to organize than corporations. They can be a convenient way to start out if you are working as an independent contractor in someone else's space, or are planning on keeping your business a part-time operation. However, there are significant disadvantages to a trainer who chooses this form of ownership. The main disadvantage being that you can be personally sued if one of your clients is injured. Also, in the event that your business gets into financial trouble, you could lose your financial well-being, as you are completely responsible for all debts. Finally, you will be required to pay self-employment tax as a sole proprietor, which you do not have to do as a corporation.

Corporations

A corporation is, by law, a separate legal entity. Shareholders invest but are not responsible for the corporation's liabilities. Any lawsuits would be filed against the corporation and not its shareholders, and therefore, personal assets are protected. C corporations are the most common, and are allowed an unlimited number of shareholders. The disadvantage of C corporations is the double tax. The business and the shareholders are both taxed. An S corporation has a different tax structure, so the corporation itself is not taxed, only the shareholders. An S corporation is limited to seventy-five shareholders, but it is unlikely that a personal training business would require even close to that number.

If you choose to incorporate, your first step is to hire an attorney. Each state has different laws, and it is important to follow the correct procedures so you are not fined. Initially, you will file as a C corporation, and then file more paperwork to change to an S corporation. Typically, you will pay $500–$700 in lawyer's fees, plus a filing fee to the Secretary of State office. While this may seem like a big expense, it pays off in decreased personal liability and tax benefits. It is also much easier to obtain financing when your company is incorporated, so if you are planning to open your own place, this is likely what your accountant will recommend.

Limited Liability Companies

Limited Liability Companies (LLCs) are a relatively new entity. They are a cross between partnerships and corporations. They are similar to corporations in that the liability lies with the business, but there is more flexibility with ownership than in corporations. You can establish yourself in your state as an LLC and elect to be taxed as an S corporation by the IRS to avoid being double taxed. It is also a good idea to state your business as an LLC in case you decide later to bring on another partner. The tax laws do get a bit more complicated with LLCs, and the laws are different in every state, so be sure to consult an attorney regarding the laws in your state.