How to Open a Yoga Studio Part 5: To Partner, Or Not to Partner

Determining the right legal structure for your studio is a process of understanding your options, goals, and needs. Learn the ABCs of sole proprietorships, partnerships, and nonprofits so that you can make the best decision for your business.

By Constance Loizos

You've decided to open a yoga studio. Can you do it by yourself? Do you even want to try?

First, acquaint yourself with the nitty-gritty of small business legal structures, which essentially comprise what are called sole proprietorships or, if more than one partner is involved, partnerships; limited partnerships; limited liability companies; and nonprofit corporations. The better informed you are, the better able you will be to decide whether to take on partners in your endeavor.

A sole proprietorship or a partnership is a business that is run by either one person (or two or more people in the latter case), who don't need to file any paperwork and whose arrangement begins as soon as they swing open a new business's doors. The advantages: it's easy as pie to get started. The disadvantages: in sole proprietorships or partnerships, the owners pay taxes on their shares of the business income on their personal tax returns, and each owner is personally liable for the entire amount of any business debts and claims. In other words, in the event that a student decides to sue you, you could lose not only your business but your personal assets.

A limited partnership is created by a person who becomes its "general partner" or the person who solicits investments from other people, who are considered the business's "limited partners." The GP, as they say in investment speak, runs the limited partnership’s day-to-day operations, while the LPs are the equivalent of silent partners, with little or no control at all. The advantages: the GP gets to run the show while resting assured that he or she has financial backing. The disadvantages: Because the LPs have almost no control, they aren't liable for the limited partnership's business debts; the GP is (unless the GP is an LLC, but more on that in a minute). Another disadvantage: it's a little complicated to set up.

A limited liability company (LLC) is the most costly to set up (a disadvantage), but it's worth it. LLCs limit the owner or owners' personal liability for business debts, as well as court judgments against a business. In short, the LLC is an independent legal and tax entity, separate from the people who own or control it. As a result, the business owners don't use their personal tax returns to pay tax on corporate profits – the LLC does.

Last are nonprofits, which are corporations that carry out either a charitable or educational purpose. (At a yoga studio, a nonprofit might offers teacher-training scholarships or offer free classes to the unemployed or military veterans.) The advantages: A nonprofit can raise funds by receiving public and private grant money and donations from companies and individuals, plus federal and state governments generally don't tax nonprofits on the money they make relating to their nonprofit purposes because of the ostensible benefits of those services to society. The disadvantages: you're probably never going to make a killing with a nonprofit.

Of course, before you set up an appointment with a tax attorney to learn more about the aforementioned, you should seriously consider the personal pros and cons of sharing a business.

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