Should I Start an LLC for My Gym?
Starting a limited liability company (LLC) for your gym can provide several benefits.
Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.
For a gym, lawsuits can arise from things like a customer getting injured as a result of being pushed by a personal trainer or from commercial insurance disputes.
LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your gym seem more credible.
Recommended: Use Northwest to form an LLC for $29 (plus state fees).
Do I Need an LLC for a Gym?
LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.
You should start an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.
LLC Benefits for a Gym
By starting an LLC for your gym, you can:
- Protect your savings, car, and house with limited liability protection
- Have more tax benefits and options
- Increase your business’s credibility
Limited Liability Protection
LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.
Gyms will benefit from liability protection because of the relatively high risk of customers getting injured while working out. Gyms also face other typical business risks like trademark infringement, financial data breaches, and workplace accidents.
Example 1: At the gym, a member trips and falls on a wet floor, sustaining serious injuries. The member sues the gym for negligence and wins the case. With LLC protection in place, only the gym's assets would be responsible for covering the damages, protecting the owner's personal assets.
Example 2: A gym member trips over a weight plate left on the floor by a personal trainer and breaks their ankle. The member sues the gym for damages, claiming the gym was negligent in maintaining a safe environment. If the gym is found liable, the LLC structure will ensure that the owner's personal assets are protected.
Example 3: An employee is injured while maintaining gym equipment and files for workers' compensation. Without liability protection, the owner could be financially responsible for paying for the employee's medical bills and lost wages.
Example 4: A patron of your exercise facility gets injured on an improperly labeled piece of equipment. They sue you and ask you to pay a settlement that covers their medical fees.
An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.
To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.
LLC Tax Benefits and Options for a Gym
The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.
Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.
S Corp Option for LLCs
An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).
S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.
The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.
In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.
We estimate that if a gym owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.
You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.
Credibility and Consumer Trust
Gyms rely on consumer trust. Credibility plays a key role in creating and maintaining any business.
Businesses gain consumer trust simply by forming an LLC.
How to Form an LLC
Forming an LLC is easy. There are two options for forming your LLC:
- You can hire a dependable LLC formation service to set up your LLC for a small fee
- Or, you can choose your state from the list below to start an LLC yourself
Select Your State
- Alabama LLC
- Alaska LLC
- Arizona LLC
- Arkansas LLC
- California LLC
- Colorado LLC
- Connecticut LLC
- Delaware LLC
- Florida LLC
- Georgia LLC
- Hawaii LLC
- Idaho LLC
- Illinois LLC
- Indiana LLC
- Iowa LLC
- Kansas LLC
- Kentucky LLC
- Louisiana LLC
- Maine LLC
- Maryland LLC
- Massachusetts LLC
- Michigan LLC
- Minnesota LLC
- Mississippi LLC
- Missouri LLC
- Montana LLC
- Nebraska LLC
- Nevada LLC
- New Hampshire LLC
- New Jersey LLC
- New Mexico LLC
- New York LLC
- North Carolina LLC
- North Dakota LLC
- Ohio LLC
- Oklahoma LLC
- Oregon LLC
- Pennsylvania LLC
- Rhode Island LLC
- South Carolina LLC
- South Dakota LLC
- Tennessee LLC
- Texas LLC
- Utah LLC
- Vermont LLC
- Virginia LLC
- Washington LLC
- Washington D.C. LLC
- West Virginia LLC
- Wisconsin LLC
- Wyoming LLC
For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.
Do LLCs Need Insurance?
All businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.
For a gym, it is crucial to have coverage for any potential liability issues that may arise. Without insurance, a gym LLC may face serious financial consequences that could ultimately jeopardize the success of the business.
Common Situations Business Insurance May Cover for a Gym
Example 1: Gyms contain a lot of heavy equipment and weights. If a patron of your exercise facility gets injured on a piece of equipment, they could file a lawsuit in order to get compensation for their medical expenses. In this instance, your general liability insurance (GLI) covers certain related expenses to the injury and any associated lawsuits.
Example 2: Personal training and fitness classes are generally covered by the completed operations clause in your GLI insurance policy. If a patron slips and falls, your GLI policy may cover the costs associated with treating the injury. If a lawsuit arises from the covered event, your GLI policy may help cover lawsuit-related expenses, including settlements and attorney's fees.
Example 3: Gyms often seek out the newest and most effective pieces of exercise equipment, including stair-steppers, all-in-one machines, and weightlifting benches. In some instances, that new piece of equipment may be defective, and if a patron is injured on that defective equipment, you could be responsible for those injuries. Your GLI insurance may help pay for the injury-related expenses and expenses related to any lawsuits.
Other Types of Coverage Gyms Need
While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all gyms should obtain:
Commercial Property Insurance
Commercial property insurance protects your building and the property inside your building if it is damaged by a covered event. Common events that are covered under this policy include fire, theft, and vandalism.
Workers’ Compensation Insurance
Workers’ compensation pays for employee injuries that occur while they are working. For example, if one of your employees is moving a piece of exercise equipment and accidentally pulls a muscle or drops the equipment on their foot, your workers’ compensation policy pays the medical bills associated with your employee getting treatment for his or her injuries.
Commercial Umbrella Insurance
Commercial umbrella insurance is a type of supplemental policy that pays for insurance claim overages. For example, if your gym experiences a lawsuit and it exceeds your policy limitations, you could be held liable for paying the costs that are in excess of the maximum authorized payout amount.
Commercial Auto Insurance
If your gym provides vehicles for your employees in order to attend events or hold personal training sessions at other locations, you will need a commercial auto insurance policy. These policies pay for vehicle damage and medical expenses that occur while your employee is driving in the company vehicle on a work-related task.
Cyber Liability Insurance
Cyber liability insurance protects your business against claims that are the result of customers’ personal data being stolen by hackers.
Should I Start an LLC FAQ
Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.
Visit our LLC vs. Sole Proprietorship guide to learn more.
Starting a gym can be expensive, with costs ranging from $200,000 to over $1 million, depending on the size and type of gym. Franchises may have lower operating costs but require a franchise fee.
Visit our How to Open a Gym guide to learn more about the costs of starting and maintaining this business.
Gyms are more popular than ever. In addition to people who have been working out for years, there are always new gym-goers looking to get in shape.
The average profit for a gym varies considerably depending on its size and location. Gyms can be big or small and have a wide variety of equipment or be focused on a particular type of workout. Any of these options has the potential to be a profitable business if you can attract and retain clients.
Learn more about starting a gym.