personal liability for yoga businesses

the entrepreneur’s lament

Personal liability is and should be one of the initial concerns of all entrepreneurs, including yoga buinesses, instructors and studio owners. Why? Because unless preventive action is taken both prior to commencing a yoga business and during operations, the owners of the business may be held personally responsible for payment of the debts of the business. In other words, if the business is not generating enough revenue to pay its obligations, the owners can be responsible for payment of such obligations from other sources of income unrelated to the yoga business. In the worst case, a creditor will have the right to obtain payment of its claims through the forced sale of the owner’s personal assets, such as the owner’s home or other investments.

The primary way for entrepreneurs to protect themselves from personal liability is to form a corporation or a limited liability company (LLC) to own and operate the business. If properly formed and maintained, these entities are considered to be separate and apart from their owners. Thus, the owners have no personal liability for the debts and obligations of the entity. The decision as to whether to form such an entity, however, involves a number of considerations, including the appropriate nature of the entity, the state in which the entity is located and the particular legal requirements for the type of entity you’ve selected.

In addition, there are fees and costs involved in setting up a corporation or LLC, and unless properly established and maintained in accordance with legal requirements, the protection from personal liability that these entities might otherwise provide will be lost. Therefore, it is critical to consider this matter with a lawyer and to utilize his or her services if you decide to proceed with the formation of an entity.

In the interim, and while considering the matter of the formation of a corporation or LLC, there are a number of measures that can be employed to limit a sole proprietor’s personal liability. For the yoga instructor or studio owner, some of these measures include the following:

1. Have Your Students Execute Release Agreements.

2. A well drafted release agreement, signed by your students, is one of the principal means of protecting yourself against liability.

3. Include Limitations of Liability in Your Agreements. 

If you are operating your business as a sole proprietorship or general partnership, you will, by definition, be signing all of your agreements personally. Therefore, you will be personally liable. However, it is often possible to include language in these agreements that limits liability. Such limitations can take various forms, including a “penalty” in the form of a fixed amount in the event of your breach of the agreement. In addition, you might be able to negotiate an express provision in your agreement that requires the other party to look only to the assets and revenue of the business to satisfy any claims against you.

Obtain Adequate Insurance. 

Adequate insurance against the risks attendant to your business is another valuable means of mitigating your personal liability. Appropriate insurance provides a source of payment of any liabilities incurred in the operation of your business, and in many cases, will also provide legal defense costs. The types of insurance available to yoga instructors and studio owners should be carefully considered with a qualified insurance agent experienced in this area. 

Include Appropriate Disclaimers 

Make sure that all advertising and marketing materials include appropriate disclaimers. These disclaimers should be clearly worded and set out in bold type.

Read the Fine Print 

First, as the adage goes, “Success is in the details.” In agreements, details are often in the fine print. Second, do not assume that the fine print is standard and non-negotiable. This is often not the case.

When in Doubt, Ask an Expert

Knowing what you do not know is essential to success. Ask questions of your lawyer, accountant or other mentor. If you do not have any experts in your life, ask for recommendations from people you trust and then seek to include them in your circle of business advisors.

When Resolving Issues, Get a Written Release 

In the event that you have a business problem and you are able to settle it, make sure that a written release is obtained from the other party. This release should be specifically detailed as to the facts and, as part of the settlement, expressly release you personally from any liability.

Concerns of personal exposure in a business context can be distracting. Of course, there is no absolute way to preclude an action against you personally, especially where you are legally responsible for payment of the claim. However, addressing the issue by employing preventive measures is one way to reduce some of the risk and allow you to focus on your success. That is smart business.

* This article is intended to present an overview. Readers should always consult with legal counsel regarding their particular legal issues.