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Running a CrossFit Facility Tips and guidance on how to open and operate a CrossFit gym.

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Old 08-15-2008, 02:57 PM   #1
Jason Galvan
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Sole Proprietor vs. LLC, etc...??

Obviously, sole proprietor is the simplest way to start a business, but I've seen some people incorporate right out of the gate. To affiliates: Why did you start out as a sole proprietor? Why as a LLC? What pros/cons can you give specific to running a Crossfit facility?

Thank you!!
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Old 08-15-2008, 06:07 PM   #2
Randy Tarasevich
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Re: Sole Proprietor vs. LLC, etc...??

An Limited Liability Corporation (LLC) offers much more protection against liabilities than does a Sole Proprietor form of organization. With a Sole Proprietor you an an individual is responsible for all the liabilities (accidents/injuries, debt, etc.) that the business incurs. As an LLC, you and the business are technically two separate entities. However, you are still taxed as an individual Sole Proprietor, so that kinda sucks. Wiith the kind of business a CrossFit facility is, it really makes no sense to organize as a Sole Proprietor.
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Old 08-15-2008, 06:36 PM   #3
Greg Major
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Re: Sole Proprietor vs. LLC, etc...??

Actually the tax thing can work out pretty good as the business is lumped in with your individual taxes. Your first couple of years can give you a really nice tax break, at least that's how it worked for me. I would think with the start up costs you should be able to claim some nice write offs. You should incorporate as Randy says. All it takes is one person to bring a law suit (unfortunately there's plenty out there who are just waiting for the chance) to ruin your investment. And don't do anything without being insured.
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Old 08-16-2008, 04:01 AM   #4
Jill Zimmerman
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Re: Sole Proprietor vs. LLC, etc...??

I took a boundary law class from a surveyor/lawyer - best in the business. He wrote the text book on the subject. He said he would never have a sole proprietership (as a lot of surveyors do) because if you get sued and the amount exceeds your insurance, the person suing you can take everything you own. Your home - everything you own, ouch. LLC that can't happen because it's the LLC being sued - not you.
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Old 08-16-2008, 07:41 AM   #5
Derek Franks
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Re: Sole Proprietor vs. LLC, etc...??

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Originally Posted by Randy Tarasevich View Post
An Limited Liability Corporation (LLC) offers much more protection against liabilities than does a Sole Proprietor form of organization. With a Sole Proprietor you an an individual is responsible for all the liabilities (accidents/injuries, debt, etc.) that the business incurs. As an LLC, you and the business are technically two separate entities. However, you are still taxed as an individual Sole Proprietor, so that kinda sucks. Wiith the kind of business a CrossFit facility is, it really makes no sense to organize as a Sole Proprietor.
I would suspect that being a sole proprietor is actually tax favorable for most affiliates. That said, incorporating does protect you from liability in theory at least. If you're going to go borrow money though, I don't think you're going to find anybody that will loan your corporation money without you signing for it personally. So if you go out of business, you'll still be liable for the money regardless.

Last edited by Derek Franks; 08-16-2008 at 07:44 AM..
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Old 08-16-2008, 09:30 AM   #6
Randy Tarasevich
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Re: Sole Proprietor vs. LLC, etc...??

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Originally Posted by Derek Franks View Post
I would suspect that being a sole proprietor is actually tax favorable for most affiliates. That said, incorporating does protect you from liability in theory at least. If you're going to go borrow money though, I don't think you're going to find anybody that will loan your corporation money without you signing for it personally. So if you go out of business, you'll still be liable for the money regardless.
This is absolutely true. There's always a paper trail with your name on it (bank account, credit line, etc.). But in theory it works well.
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Old 08-18-2008, 11:19 AM   #7
Henry Miller
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Re: Sole Proprietor vs. LLC, etc...??

Even if you have to personally sign for some debts, a LLC means you know exactly how much you are out in the worst case. If you have to put up say $10,000 of your house against a LLC and fail (presumably because you are sued), you just get a $10,000 home equity loan and go on your way.

Most courts will not allow your house (or retirement plans) to be taken if you get sued, but you may lose just about everything else. A LLC allows you to go out of buisness and save everything personal. If most of your clients like you, then there is no law that you cannot start a new LLC doing the same thing training the same people. (if someone got hurt you may have trouble getting insurance) Some companies do this all the time (when you hold a going out of business sale you don't have to lower your prices - only go out of business - but people think you lower prices so they buy. This isn't a good crossfit plan but it is something to know anyway)

It is not hard to set up a LLC. I know many people who have done it. In many ways it is easier to get a loan when you are a LLC - even though the bank gets less if you fail, that you were able to fill out that little bit of paperwork shows that you can take care of details and those who take care of details tend to do better in buisness.

P.S. It is easier to get loans for a new business if you already have a few failed buisnesses that you started - they assume you learned from the experience. They only way around this problem is to start cheap, and work hard. If you fail well try again.
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Old 08-18-2008, 12:32 PM   #8
Derek Franks
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Re: Sole Proprietor vs. LLC, etc...??

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Originally Posted by Henry Miller View Post
Even if you have to personally sign for some debts, a LLC means you know exactly how much you are out in the worst case. If you have to put up say $10,000 of your house against a LLC and fail (presumably because you are sued), you just get a $10,000 home equity loan and go on your way.
How exactly is that different than a sole proprietorship?
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Old 08-18-2008, 02:47 PM   #9
Scott Borre
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Re: Sole Proprietor vs. LLC, etc...??

general rule of thumb:

If your number of employees is 1 - you, go sole proprietor. Especially if your total assets and liability of the company is small enough that you can take it out of your checking account.

If you have more than that in employees and liability best bet is LLC.

Check out the small business bureau for more information and advice in figuring out what to do (http://www.sba.gov/ WFS).
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Old 08-18-2008, 04:49 PM   #10
Peter Keller
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Re: Sole Proprietor vs. LLC, etc...??

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Originally Posted by Derek Franks View Post
How exactly is that different than a sole proprietorship?
That is not. However, see below:

Someone sues you.
  • If you had previously incorporated (e.g., LLC), they can only access the assets of the business.
  • If you are a sole proprietor, they can access all your personal assets.

In the previous example, Henry's point is that you know your exposure. If you sign a personal guarantee on a loan, you know that your name is on that debt.

To look at it another way, if you start a business and you go bankrupt:
  • As an LLC, your debtors can legally take any remaining money/assets of the business to satisfy the debt.
  • As a sole proprietorship, your debtors can legally take any remaining money/assets of the business and your personal assets to satisfy the debt (though potentially your house and retirement fund might be protected).

Hopefully that helps.
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