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Business structure

Intro

For tax purposes, you must choose a business structure, either a sole proprietorship, partnership, or a corporation. Each has its own legal considerations and advantages or disadvantages, depending on individual circumstances, so it is best to consult a lawyer and an accountant before deciding.
Sole proptiertorship A sole proprietorship is the simplest of the business structures, it means that you are in business for yourself, having no other partners. It needs no legal forms to identify it. For tax purposes, the paperwork is generally limited. You also have unlimited liability as to your taxes and financial and legal responsibilities. This means that if the school incurs any debts, you are personally responsible for the entire amount of the debts. If you did not have enough money to pay these debts, your personal assets could be sold. The income tax rate for the sole proprietorship depends on your level of income.

Partnership

The partnership is somewhat similar to the sole proprietorship. It has two or more people involved in the business. It requires one or more legal agreements spelling out the nature of the partnership, such as terms of agreement, responsibilities, salaries, and other business-related details.

There are two types of partnerships: general and limited partnerships. General partners share in having unlimited personal liability for the business, in the same manner as the sole proprietorship. If one partner could not cover his part of a debt of the business, the others may be held liable for the entire amount. Limited partners are generally not involved in running the business, and usually are liable for only the amount of money they invested in the partnership agreement.

Each partner, unless specifically stated otherwise in the agreement, may carry on the activities of the business. This is one of the disadvantages of the partnership. Since each partner may carry out business, problems may arise if communication is not kept open and smoothly flowing between the partners.

Partners file an additional tax form to the federal government, as well as any state forms that may be needed. The partnership ends when either of the partners dies, when the agreement calls for the end of the partnership, or when a partner legally leaves the partnership.

Corportions

Laws concerning corporations fill volumes, especially since they vary from state to state. While the sole proprietorship or the partnership is a legal entity in which you are the whole, or part of the whole, a corporation is an entity unto itself. You, and any others are just stockholders in the corporation. If you would die, the corporation could still remain in existence.
One of the main reasons for incorporating is the limited liability of the corporation's stockholders. Instead of a sole proprietor or a partner being held accountable for a business debt, the corporation bears the accountability. A corporation may have one stockholder, the business owner. Sometimes this may protect the business owner's personal assets from a corporation debt.

Taxes

Taxes laws change every year so it best to have an accountant handle your school taxes. No matter your business structure, you should keep good records. Account for every dollar in, and every dollar out. To take advantage of all your possible tax breaks, you need to link all expenses that you may legally use to your business. This includes travel to and from the school, to your own training sessions, to demonstrations, to tournaments and camps, etc. It includes uniform costs, cleaning costs, and any meals that may be legitimately linked to business.

Records

Student files

A file should be maintained on each student including emergency data, test records, contracts, etc. Some might argue that this is unnecessary work, but the file takes little time, keeps information organized, and may be extremely useful for a number of reasons, such as when the student was last promoted, any medical conditions, or disciplinary problems.

Telephone call record

This record is useful when the phone company makes mistakes on billing, or when you need to track unauthorized calls by employees.

Testing records

All testing records should be maintained forever. Years from now, previous students may need you to verify their rank. You took their money for the testing, so you should be able to verify their performance and their results at every testing in which they ever participated.

Class attendance records

This is a vital record since it helps settle disagreements students or parents may have with their attendance. Many schools and associations have strict attendance requirements as part of belt promotion requirements, so when promotion time comes around, there are always some disagreements about attendance. Detailed attendance records make it easy to settle attendance disputes. They also allow instructors to track student attendance to see if students are attending regularly or if they have been absent for a period, so the instructors may check with them to find out why. Attendance records should be posted so students may check their status daily and question any discrepancy immediately.

Computer student tracking software makes attendance keeping simple. The software may store all student information, keep attendance, print contracts, print testing forms, and may furnish many other useful features.

Contracts and training agreements

Many instructors use a contract or training agreement to protect themselves legally and to ensure a steady flow of income. There is usually a statement of health condition before training and some form of liability waiver stating that the instructor or the school will not be held responsible for any accidents or other injuries that may occur. Contracts and waivers should be written or reviewed by an attorney. When applying for business loans, written contracts help show the schools guaranteed revenue flow.

Contracts are a touchy subject with many students and instructors, both sometimes claim that such written agreements are needed to protect, while others claim that the martial arts have a tradition of only a verbal contract binding the student and instructor together. If the martial arts school is approached strictly as a business venture, then perhaps the former position makes sense, but at the same time, based on tradition, the latter may be appropriate.

Subsidiary sales

One way to increase your income is to offer equipment for sale, such as tee shirts, uniforms, patches, videos, books, etc. You become a wholesale buyer, which means in most states that you must obtain a vendor's license. You must also have the funds to purchase the initial inventory.

SOURCES
  • Beaver, W. (1986). Opening Your Own Martial Arts School: A Planning Guide. Originally published by Brennen Business Guides (out of print).

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