Should I Start an LLC for My Martial Arts Studio?

Starting a limited liability company (LLC) for your martial arts studio 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 martial arts studio, lawsuits can arise from things like a student being injured as a result of your studio’s failure to properly supervise him or misrepresentations regarding how qualified your studio’s instructors are.

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your martial arts studio seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Do I Need an LLC for a Martial Arts Studio?

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 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.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a professional 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

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.

LLCs like martial arts studios require this even more because of the implied nature of the business. Hence, purchasing insurance coverage is extremely important to deal with lawsuits springing from events such as bodily injuries and property damage.

Common Situations Business Insurance May Cover for a Martial Arts Studio

Example 1: A student slips on a wet floor in your restroom, breaks an arm, and decides to sue your studio because you didn’t clearly mark the wet floor. General liability insurance would cover your legal defense costs and any required settlement.

Example 2: As you carry some martial arts equipment from a back room into your studio, you fail to see a student’s parent and knock him over. He breaks his tailbone as he falls onto the tile floor and asks you to pay for his medical care. General liability insurance would cover his medical treatment.

Example 3: A competitor sues you for libel. While you disagree with the accusation, you realize you need an attorney to protect your interests. General liability insurance would cover your legal defense costs.

Other Types of Coverage Martial Arts Studios 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 martial arts studios should obtain:

Professional Liability Insurance

While you strive to ensure each of your students receives the best instruction on how to defend themselves, there’s always a chance someone might decide your services caused them harm. If a student sues your business for negligence, professional liability insurance would cover your legal fees and any required settlement.

Commercial Property Insurance

You made a major investment in the equipment, supplies, and real estate necessary to run your studio. In the event of a fire, theft, or natural disaster, commercial property insurance would cover the cost of repairing or replacing your business-related property. This includes structural damage to your building and the business materials stored there.

Workers’ Compensation Insurance

If you have any employees, most states will require you to carry workers’ compensation insurance for your part-time and full-time workers. This coverage protects your employees if they become injured at work or fall ill after a work-related accident. It not only covers an employee’s medical bills and lost wages if they need time to recover but also any disability or death benefits stemming from a workplace accident.

Commercial Umbrella Insurance

While your general liability insurance policy covers most claims, some accidents or lawsuits may be so catastrophic that they threaten to exhaust the limits of your primary coverage. Commercial umbrella insurance protects you from paying out-of-pocket for any legal fees and awarded damages that exceed your primary policy.

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.

At a minimum, you’ll need general liability insurance and commercial property insurance.

Read our Martial Arts Studio Business Insurance article for more info.

All in all, the costs of setting up a martial arts studio are not exorbitant. Combining the costs of a ring, training equipment, mats, sparring gloves, first aid kits, and other protective gear, the sum of $10,000 to $15,000 can get you well on your way.

Visit our How to Start a Martial Arts Studio guide to learn more about the costs of starting and maintaining this business.

Lease payments, utilities, insurance, and marketing are the primary ongoing expenses.

Learn more about running a martial arts studio.

Martial arts studios charge participants monthly fees and possibly an annual membership fee.

Learn more about starting a martial arts studio.

Profits depend on the number of students and how much they pay per month, along with overhead costs. Additionally, a well-run martial arts studio has significant profit potential.

Location and clientele will also impact profits. Many people want to train in martial arts, and children in particular are a good target audience.

Learn more about starting a martial arts studio.