Is an LLC Right for Your Massage Therapy Practice?
If massage is your first career and you don't have prior business experience, you may want to seek professional advice as you set up your practice. Your local Chamber of Commerce or Small Business Association will be a tremendous resource. You may also want to visit free legal websites like Nolo.com and LegalZoom to educate yourself about the basics.
As you begin your practice, one of the first questions you may be asked is: "Have you thought about becoming an LLC?" In this post we will examine whether or not an LLC (Limited Liability Company) versus being a Sole Proprietor is right for your massage therapy business.
A Limited Liability Company has distinct advantages...
What are the benefits of incorporating?
A Limited Liability Company has distinct advantages for any business person, including owners of massage therapy practices. The main benefit to incorporating is to protect personal assets in the event that your business goes bankrupt. Creditors cannot legally come after an LLC member's home, car, or other personal possessions. As an owner of an LLC, you stand to lose only the money invested in the business, whereas in a Sole Proprietorship you could lose a lot of money, be sued and lose your house or car, as there is no legal distinction between the owner and the business.
There are other benefits to forming an LLC, such as:
- Minimal paperwork and hassle
- Avoiding double taxation
- Flexibility in profit sharing
- Running your business without needing the approval of partners or shareholders
What are some exceptions to limited liability?
Although the benefits of limited personal liability protections are significant, there are a few serious exceptions. An LLC owner can be held personally liable if he or she:
- personally and directly injures someone
- personally guarantees a bank loan or a business debt on which the LLC defaults
- fails to deposit taxes withheld from employees' wages
- intentionally does something fraudulent, illegal, or reckless that causes harm to the company or to someone else, or
- treats the LLC as an extension of his or her personal affairs, rather than as a separate legal entity.
Do I still need liability insurance?
Yes. "The single most important piece of advice I can offer practitioners is to protect themselves with liability insurance--one of the many member benefits offered by Associated Bodywork Massage Professionals (ABMP)," says Laura Allen in her article "Set Up Your Business For Success" on massagetherapy.com.
A good liability insurance policy can protect your personal assets even when limited liability protections do not. NOLO.com, a free legal advice website, even cites this example for massage therapists: "For instance, if you are a massage therapist and you accidentally injure a client's back, your liability insurance policy should cover you. Insurance can also protect your personal assets in the event that your limited liability status is ignored by a court."
How do I register as an LLC?
Don't just take our word for it! Before you make the decision to register, you might want to consult your accountant or attorney. They will also be able to help you with your state's requirements.
That said, registering is a straightforward project. In fact, you can go through Nolo.com's online process right here, if you want step-by-step help. You will need to complete the following:
- Pick an available business name that complies with your state's LLC rules
- File formal paperwork, usually called "articles of organization"
- Pay the filing fee (ranging from $100-$800)
- Create an LLC operating agreement, which sets out rights and responsibilities of LLC members
- Obtain licenses and permits that may be required for your business
What are your thoughts on limited liability? Share your stories and questions with us in the comments below!
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