What is the best business structure for a gym? (LLC vs. C-Corp vs. S-Corp) | Exercise.com Learn: Your Fitness Business Resource

What is the best business structure for a gym? (LLC vs. C-Corp vs. S-Corp)

Deciding the best business structure for gyms is a complicated issue, but it’s one that will drastically affect the life of your fitness business. Is a gym an LLC? Is a gym an S-corp? What do those terms even mean? Check out this guide to learn more about the best business structure for a gym.

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UPDATED: Jul 19, 2021

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  • C-corps are complicated to set up and maintain, and they are generally meant for large companies.
  • Before being granted an S-corp status, a business must meet a laundry list of IRS requirements.
  • LLCs are a way for single-owners or partnerships to achieve some of the protections of corporations.

Some aspects of opening a new gym are exciting. Choosing a name, picking out equipment, and designing your own custom-branded fitness app are just a few of the more fun parts of starting a fitness business. But unfortunately, not everything will be so pleasant. In fact, some of it will be downright confusing. Deciding the best business structure for a gym is one such issue.

If you’re the gym’s only owner, it might seem easiest to go ahead as a sole proprietorship, but that means your personal finances will be on the line for all of the business’s successes and failures. Ready to find out if there’s a better way? Then keep reading.

The right gym management software can help your new gym run smoothly so you can turn a profit quickly. Book a demo to find out more.

Should my gym be a C-Corp?

A C-corporation is a legal structure that creates separation between the owner’s assets and the business’s assets. Most major corporations are structured as C-corps.

PROS:

  • Because the owners’ assets are not lumped in with the business’s assets, if the business should fail, the owner’s assets are not at risk.
  • A C-corp is not attached to any one person. While shareholders and even owners may change over time, the C-corp still maintains its structure.

CONS:

  • Because the owner’s assets and the business’s assets are separated, each is taxed individually. Therefore, if the owner takes money from the business (in the form of a dividend), it will be taxed first as income for the business and then as income for the owner. In other words, this creates a situation of double taxation.
  • C-corps are complicated to set up and maintain, and they are typically meant for large companies (over 100 people).

Should my gym be an S-Corp?

An S-corporation (sometimes called an S-subchapter or “pass-through entity”) is meant to give smaller companies (fewer than 100 people) the benefits of a corporation without the burden of double taxation. S-corps generally pay no corporate taxes; instead, all profits and losses pass through to the owners and shareholders, who report them on their personal taxes.

PROS:

  • Along with protecting the owner’s assets, a smaller tax bill is the biggest benefit of being an S-corp. This is due to the lack of corporate taxes, but also due to things like deductions on business expenses and limited tax-free distributions to employees who are also shareholders.

CONS:

  • Before being granted an S-corp status, a business must meet a laundry list of IRS requirements. This can be a huge hassle for anyone not used to navigating government paperwork.
  • Even if the business manages to gain S-corp status, the IRS can still terminate that status at any time if the business doesn’t manage its money completely and transparently by the book.
Exercise.com can help make it simpler. Book a demo to learn more.

Running a fitness business is complicated.

Should my gym be an LLC?

Limited liability companies (LLCs) are a way for single-owners or partnerships to achieve some of the protections of corporations. Requirements vary by state, however, so you will need to investigate the rules for your specific location.

PROS:

  • As the name suggests, owners and shareholders are generally not personally liable for the business’s debts if things should go south.
  • Similar to an S-corp, the LLC’s profits and losses pass through to the owners, who report them on their personal taxes.
  • Unlike corporations, there are far fewer restrictions on who may be considered an owner or shareholder.
  • While there are still paperwork hoops that must be jumped through, LLCs are far easier to set up and maintain than corporations.

CONS:

  • LLCs are attached to a specific member(s). Therefore, the LLC will be terminated in the event of a sale, retirement, or death.
  • LLCs may be subject to self-employment tax, which also results in higher taxes for employees. You may wish to hire an accountant or business attorney to help you make sure your LLC is structured properly to avoid this.

The Bottom Line: The Best Business Structure For Gyms

No matter which way you structure your new gym, there will be pros and cons. However, this is a huge decision that will drastically impact your new fitness business. Unless you have experience in this area, it would be wise to seek professional advice before deciding on the best business structure for your gym.

The right gym management software can help turn you into a business pro. Book a demo to get started.

Learn more about Exercise.com Fitness Business Management Software.

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