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Does a 1 person personal trainer biz need to become an LLC to protect personal assets or is having liability insurance enough?

Emmaus, PA |

My ex-spouse to be has a one-woman personal training practice in the state of PA. She carries liability insurance. Our accountant seemed to thing having liability insurance would be enough protection. Don't want to spend money on initial incorporation and subsequent annual agent fees if not necessary.

Attorney Answers 3


  1. Your threshold question should be whether to form an entity (an LLC or an S Corp). It is a tradeoff between (1) unlimited personal liability and (2) paying to form the LLC and the taxes and fees payable by the LLC. (Consult a local lawyer as to his fees, state filing fees and taxes.) If risk is your main concern, the LLC is more advantageous; if costs, then a sole proprietorship.
    Whether to incorporate is a question only you can answer. How risky do you think this business is? Incorporation protects your personal assets from creditors of the entity (i.e., the LLC or the corporation) but the entity remains liable for debts. The first thing to do is to get good liability insurance coverage–talk to a knowledgeable insurance agent. Also get professional responsibility (malpractice) insurance, as the LLC will not protect you there. Ordinarily the entity will not protect you from bank loans because the bank will require you to guarantee the loan personally. An LLC or an S corp will protect you from liability while letting you deduct the business expenses on your personal tax return. An S corp has tricky rules for eligibility; if you lose the S corp treatment, the corp will become a C corp, liable for taxes on its income. This means double taxation. An LLC works just as well without the tax risk. If you transfer the building to a corp, you will regret it when it’s time to sell the building. You will be better off to buy liability insurance on the building and lease it to the LLC if you opt for an LLC.

    B. Keith Martin
    sbbizlaw.com

    DISCLAIMER—This answer is for informational purposes only under the AVVO system, its terms and conditions. It is not intended as specific legal advice regarding your question. The answer could be different if all the facts were known. This answer does not establish an attorney client relationship. I am admitted only in California. (Bryant) Keith Martin sbbizlaw.com


  2. In any business that has the risk of injury to people or property, it is wise to establish a separate legal entity, such as a limited liability company or a corporation, through which to run the business. In this situation, for example, what would happen if someone she was working with hurt herself, collapsed, hit her head and died? I doubt that the insurance coverage would be sufficient to cover that situation. If not, your ex-spouse's personal assets could be at risk. I would recommend that your ex set up a separate legal entity, with a separate tax ID number and bank account and under which all revenues are received and expenses paid.

    Feel free to have her contact me if she is interested in discussing this further (215-525-1165 x101)

    This response does not create an attorney-client relationship and is not intended to provide legal advice for your specific situation.


  3. The cost of forming an LLC or an S corporation is quite modest compared with the travesty if your ex spouse ever gets sued. There are tax advantages to an S corporation, but an LLC can be taxed as an S corporation, so the LLC might still work. Moreover, unless she is going to make more money than one would normally earn in that business, the tax advantages of the S corporation may be of no significance.

    Yes, liability insurance is great. But if a client ever died or if a client were seriously injured, the client could decide to sue for more than the policy. Then personal assets are at risk. With a properly organized and operated LLC, that risk is addressed.

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