Should I Start an LLC for My Martial Arts Studio?

By starting an LLC for your martial arts studio, 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.

Martial arts studios will benefit from liability protection because of the risk of being sued for personal injuries, property damage, and trademark infringement. 

Example 1: A group of parents purchases a year’s membership for their children at your martial arts studio. Your policy only provides for a 20% refund in the case of an unused subscription. Halfway through the school year, they move their kids to a new studio and demand a full refund. If they go on to sue, the lawsuit will only affect your LLC’s assets.

Example 2: A 50-year-old man suddenly enrolls at your studio seeking martial art training. During his first session with you, he falls and sustains a fracture of his femur. He then sues you for medical damages, claiming that your equipment was defective. With an LLC structure in place, your personal assets will remain safe from fines imposed by the court.

Example 3: Your martial arts studio is located next to a yoga studio. After three months of peaceful cohabitation, suddenly, charges of noise pollution and physical assault are filed against you by the studio. Later on, you discover that the yoga studio’s new manager has a bone to pick with you from the past. In this scenario, the LLC structure helps to safeguard your personal assets even if the business is found to be guilty.

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 Martial Arts Studio

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business’s net income passes through to the owner’s individual tax return. 

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 martial arts studio 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

Martial arts studios rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.