Health Coach Tips: Should You Be a Sole Proprietor or LLC?

New to the self-employment world? You’ll have a few decisions to make before you get too far down the road. Obviously, you’ll need to figure out things like your business name, your niche, and where and how you’ll meet with clients. But you’ll also have to decide what kind of legal entity you’re going to operate as.

Remember, you can’t legally do business when you’re self-employed without setting up your company with the government.

So, in today’s post, I’ll be discussing the difference between being a sole proprietor and a limited liability company (LLC), and help you figure out which one is right for your health coaching business.

You might already have a few questions, like “what’s a sole proprietor?” quickly followed by “what’s a limited liability company?” Both good questions, and both I’ll answer below. But before I do, please know that going into any legal agreement (like setting up a business) is a big deal, so be sure to consult with a lawyer or accountant who specializes in small businesses.

• A Sole Proprietor is a business owned and run by one person, where there’s no legal distinction or separation between you personally, and your health coaching business. It’s possible for a sole proprietor to have employees, but typically this is a one-person operation.
• A Limited Liability Company (LLC) is somewhere between a sole proprietorship and a corporation. An LLC offers limited liability—meaning the government can’t come after your personal income if your business were to owe taxes or go bankrupt. It’s also more flexible and has way less paperwork than if you were to do business as a full-on corporation. Just FYI, if you’re the only employee of your business, you’ll likely be forming a single-member LLC (or SMLLC).

At this point you might be wondering, what do most health coaches register their businesses as?

Personally, I’m a sole proprietor, and have been for the 14 years I’ve been self-employed. That said, the Primal Health Coaches I’ve talked to are split about 50/50. That’s because there are a ton of variables that can impact the decision, ranging from the laws where you work and live to whether or not you want that added liability protection.

Weighing the Pros and Cons

There are lots of things to consider before setting up your health coaching business. There’s the logistical stuff, like how your company is structured, the costs associated with it, and how much protection you’ll need against lawsuits and debts. Plus, how much extra paperwork you want to do (or not do) come tax time.

Sole Proprietorship Pros

1. The easiest and least expensive way to launch your health coaching business
2. Not a lot of paperwork or filing required to get started
3. You can choose a business name if you want to, but you can also just use your legal name
4. As the sole owner of the business, you have complete control of all decisions—and all profits go to you
5. Doing your taxes is much simpler because you file your business income on your personal income tax form
6. You don’t have to keep tons of records or worry about hiring a bookkeeper

Sole Proprietorship Cons

1. If your health coaching business incurs any losses, it’s on your shoulders
2. Same goes for debts and financial obligations—as a sole proprietor, collectors can legally come after your personal assets, like your car, home, and personal bank accounts
3. If someone you’re coaching gets sick or hurt under your care and decides to sue you (and you don’t have liability insurance), your personal assets could be at stake here too
4. Raising the capital you might need to grow your business can be more challenging
5. Banks and financial institutions are more hesitant to lend to sole proprietors
6. Sometimes a sole proprietorship can be seen as less professional than an LLC

Limited Liability Company Pros

1. You have limited liability protection, so you’re never personally responsible for debts, fines, or other financial obligations
2. Your personal assets won’t be garnished if someone gets sick or hurt under your care either—although you should always carry liability insurance
3. In general, your taxes will be about the same as if you were a sole proprietorship
4. You could be seen as more professional by new clients looking for an established health coach
5. It can be easier to get a bank loan when you operate as a limited liability company
6. It can also be easier to raise capital or get investors onboard if needed

Limited Liability Company Cons

1. It generally costs more to set up an LLC, anywhere from $200 to $1,000 depending on your company and where you’re located
2. You might have more tax paperwork to do, especially if you have employees
3. With an LLC, it’s required that you keep and submit accurate business records
4. You can be taxed as a sole proprietorship, partnership, or corporation, which can get confusing
5. Business funds need to be kept separately from personal funds—if they aren’t, your limited liability protection can be revoked
6. There may be additional costs after setting up your business, such as annual fees

Which Should You Choose?

If your priorities are simplicity and lower costs, you might prefer going the sole proprietorship route. But if flexibility and liability protection are more important to you, a limited liability company could be a better fit. However, the laws are constantly changing. And for that reason alone, it’s a smart idea to check with a legal expert in your area before making your final decision.