Legal Structure

Let me start with the caveat that I am not a lawyer and you should not construe this article as legal advice and you should seek legal counsel on all matters of corporate governance and taxes. In addition the laws may be different from state to state so do your research and consult an appropriately licensed expert.

That all being said, having spent a lot of years in business and having owned and managed several different start-ups and private equity groups, I have a strong opinion on what might be the best legal structure for most individuals wanting to start a health and fitness business.  Check with your accountant or attorney on this matter but in most cases the answer to this is going to be to create a Limited Liability Company (LLC) which is essentially recognized as a partnership for tax purposes unless you are the only member (owner) which then the IRS ignores the entity and treats you like a sole proprietorship simplifying your tax return. 

The LLC structure gives you the most amount of flexibility on how the entity will be run and governed as well as allowing for virtually any profit or loss distribution sharing arrangement or cash distribution priority irrespective of which partner owns what percentage of the LLC.  For purposes of an LLC, the terms partner or shareholder may be used to describe the equity owners but the proper legal term is "Member".  An owner of an LLC is a Member of the LLC. A Managing Member is a legal term that gives responsibility to a certain individual to manage the affairs of the company on behalf of all the other members.

So for example, I could give 99% of the equity in the LLC to my children and keep 1% but yet I can create an operating agreement that states I get 100% of the profit distribution and or losses until which time the Managing Member and or the shareholders of the LLC decide to change that language.  In addition I can designate myself, the 1% owner as the only Managing Member that gets to make any decision on how the business is run and profits are shared barring any overriding state laws that may take precedent.  LLC's are managed by the Members or by a designated Managing Member or Non-Member Manager (Managers may or may not be a member of the LLC) who acts on the behalf of all the members.

There is much more to the legal structure and how is is set up and what you can do  but suffice to say you get the personal protection of working within a legal structure (as much as the laws of your state allow), yet the flexibility to run the business virtually any way the Operating Agreement among the partners dictates.

Pro Tip: Obtain Your EIN

An EIN is an Employer Identification Number. This is also known as the Federal Tax Identification Number, and is a very important number to have if you're setting up a business!

You can get an EIN from the IRS - and you can register for it online right now. 

Click here to apply for your EIN.

The Scholar Warrior
A graduate of Loyola University and MBA from The University of Chicago
Pre-med LSU and post graduate at A.T. Still University.

A wrestler in high school and for a brief time in college until realizing the challenges of studying and playing sports at a high level while constantly having to cut weight, he decided to coach and master the challenges of health and fitness through weightlifting and martial arts while pursuing careers in consulting and eventually the venture capital and private equity business specializing in food and nutrition industries.

A blackbelt having studied martial arts for over 30 years including kickboxing, Muay Thai, BJJ, Krav Maga, Kenpo Karate, Kung Fu, Northern (Longfist) and Southern Shaolin (Hung Gar Tiger and Crane), Tai Chi, Qigong, Traditional Weapons and Chinese philosophical studies including Taoism, internal arts and energy systems from an Eastern medicine perspective.

He is also the author of the Six Sigma Fitness™ Scholar Warrior Program which brings together the Eastern and Western sciences as well as the training of both traditional strength and conditioning with martial arts programming.

He is currently the Research Physiologist with UltraFit Systems, Physiologist/Consultant to the internationally renown MMA Lab working with professional UFC fighters. Authored and developed The Scholar Warrior Program for Six Sigma Fitness™ and The Six Sigma Fitness™ Methodology.

Past certifications are too numerous to list but more recently include Certified Personal Trainer (C.P.T.), CrossFit Level 1, Precision Nutrition, Poliquin Biosignature, PCIP, BioForce HRV, BioForce Certified Conditioning Coach