Every gym owner falls into one of three categories: New Gym Owner, Experienced Gym Owner, and Selling Gym Owner. Within each category is a whole host of places where gym owners can leave themselves legally exposed. Or, put another way, places where gym owners carry unnecessary legal liability. Below is the most common place of legal exposure for each category. By eliminating this legal exposure, a gym owner can significantly reduce the potential of a business ending legal problems.
Treat Your Company with Formality: The most common type of corporate structure for gym owners is the Limited Liability Company or LLC. There are others, Partnerships, Limited Liability Partnerships, or Corporations. However, LLC is the most common. As such, we will refer to the corporate setup as the creation and management of the LLC. The same still applies to any other corporate structure.
Once you create an LLC, there is a formal process that must be maintained if you want to enjoy the “limited liability” protection. For example, setting up a business bank account, setting aside money owed for taxes, filing your fictitious business name, getting an Operating Agreement, and following the procedures set forth in that Agreement.
Pro Tip: Wodify has an extensive Financial Reporting feature to help stay organized and reduce any headaches businesses can cause your accountant! They’ll thank you later.
Most of these formalities are designed to demonstrate that you are treating your LLC separately from yourself. If your LLC is ever sued by a client, the Court of Law will determine whether you and your LLC are two distinct legal entities. If so, you will have a better chance of having your personal assets protected by the LLC. However, if you are doing things like depositing revenue directly into your personal bank account or paying your taxes from your personal account, then it looks like you and your LLC are one and the same. Similarly, if you never had an attorney draft an Operating Agreement, then you technically don’t have an agreement with your LLC to offer you that limited liability protection. As such, your personal assets may be still exposed.
Update Your Legal Documents: For experienced gym owners, the most common mistake is believing that the legal document you’ve been using for the last seven (7) years is still covering you today. Laws governing contracts like membership agreements update all of the time. For example, some states are starting to apply Health Club Acts to online sales and transactions. This may require gyms in that state to add certain disclosures to their membership agreements if they sell memberships online through their business portals. Fortunately, with Wodify, you can easily create and customize membership agreements to make sure they comply with the latest regulations, including any new requirements in your state.
Similarly, society changes over time and different things can become a liability. Five (5) years ago, we didn’t have to worry about digital video and audio waivers. The more we go online (accelerated by the Pandemic), the more we expose ourselves to liability. Your in-person general liability waiver won’t cover you online. Furthermore, your in-person insurance policy may not cover you online.
Every gym owner should have a legal checkup with an attorney about once a year. You will sleep better with the peace of mind that you are updated and your business is as protected as possible.
Document The Selling Of Your Gym: Just like everything else, there is a legal process to sell your gym. Some gyms are selling for hundreds of thousands of dollars. What scares us is that this is happening with a handshake. If you are going to sell your gym, spend the time and money getting an attorney to help you do it correctly.
It isn’t enough to take money in exchange for keys. If the selling gym owner skipped any of the steps above, that legal exposure can carry over to the buyer. Most buyers we’ve represented don’t want that kind of liability. Furthermore, if there is a problem after the informal sale, an attorney may go through the process of unwinding the sale. Now, the gym owner has to come up with the money to give back to the buyer. By this time, the gym is destroyed, the members are gone, and the original gym owner is left with nothing.
The process doesn’t have to be complicated. Just because you involve an attorney doesn’t mean the sale is going to fall through. Documents like Letters of Intent, Non-Disclosure Agreements, and Asset Purchase Agreements are there to set the expectations of both parties. The more expectations are set, the less likely legal issues will arise.
Your gym is unique and has unique problems. If it weren’t then it wouldn’t have a chance at surviving. If you are like us, you want to build a successful business and keep all of the profits. We’ve all heard the horror stories of gyms going under because of lawsuits. Don’t fall into the myth of, “It won’t happen to me.” Instead, spend a little time and money eliminating the legal exposure that could kill your business with one wrong move.