What Type of Business Should I Form As A Yoga Instructor?
If you recently completed a Yoga Teacher Training, you are probably excited to get started instructing students. Becoming a teacher is hard work and you have no doubt spent considerable time focusing on learning as much as you can about the practice of yoga. While it would be nice if this is all you needed to focus on, the reality is that there is a business side to this career decision and taking note of the basics of operating a business as early on as possible will help put you in the best position to be successful. With that in mind, one of your first steps is to determine what type of business you want to form, either a Sole Proprietorship (SP) or Limited Liability Company (LLC), and it is a good idea to know the pros and cons of each:
Sole Proprietorship – This type of business means that you and the organization are treated as legally the same. In other words, all of the debts of the business will need to be paid by you, and if you happen to get sued and someone wins a money judgment against you, you will be personally liable to pay it. While this is a very strong reason to avoid using a SP, there are additional considerations to keep in mind. In many states, including California, in forming an LLC you will need to pay a minimum franchise tax (which is $800 in California, even if you don’t make any income). There are also additional filings that come with an LLC, which typically require you to complete Articles of Incorporation, appoint a registered agent, and complete and file a Statement of Information along with paying various filing fees. By contrast, with an SP, many states just require the filing of a Fictitious Business Name, publishing notice in the newspaper, and then opening your own business account. The fictitious business name is used if you plan on doing business with a name that is different than your own.
Limited Liability Company – One of the great benefits to an LLC is that you are generally not liable for the debts incurred by the business (as well as lawsuits). We say generally because there are some exceptions, such as if you are mixing up your personal and business bank accounts (commingling) or you engage in illegal actions, such as fraud. But, again it is important to recognize that with this type of limited liability comes more requirements in terms of forms to file, documents to create, fees to pay, and tax paperwork to submit.
In either case, you will want to obtain professional liability insurance (this is critical for a sole proprietorship, given your exposure). You will also need an EIN, which you can obtain for free from the IRS website and will be used to pay your taxes. If you go the SP route, you can instead use your social security number. However, if you would rather keep your SSN private or you plan on hiring employees, you will need to apply for an EIN.
So, there you have it. While forming an LLC offers significant protection over an SP, it also comes with more paperwork and up front costs. Hopefully this quick breakdown of the pros and cons of each will help you make the best decision for you and your yoga teaching practice. Namaste.