Studio Owners

An Expert Shares 4 Legal Tips All Studio Owners Should Know

Generally speaking, studio owners are artistic geniuses. You people know your stuff when it comes to quality training, correct technique, effective teaching styles, healthy parent relations, current movement trends, best business practices and so much more.

But when it comes to the minute legal details that come with opening and running a studio, there tend to be a few important tips and tricks that many aren't aware of.

To keep you as informed and prepared as possible, we spoke to lawyer and dance enthusiast Sean Monson. He works at a firm in Salt Lake City, Parsons Behle and Latimer, and is the husband of renowned studio owner Jana Monson, of Creative Arts Academy in Bountiful, Utah.

Whether you're a longtime studio owner or just getting started, check out these best practices to make sure you stay on top of potential legal headaches in the future.


1. Legal Entities

When you start a dance studio, you can choose to do it as a sole proprietorship or as a corporate entity. Feeling a little confused about what that means? Don't worry—Monson gives his take.

"A sole proprietorship means you don't form a legal entity at all," he says. "So, if I were to start my own dance studio, I would get paid personally, and then pay my employees out of my own pocket. The downside to this is, if a student gets hurt, I am personally liable, and my personal assets can be sued by someone to satisfy a judgment. If one of your teachers injures or harms a child, and you don't have a corporate entity, they can collect on your bank accounts, houses or cars. Everything is on the line."

That doesn't sound great, right? Yeah, Monson doesn't think so either. So, he recommends you create a corporate entity. There are three main types of corporate entities: a C Corp, an S Corp and an LLC. Companies like Apple or Microsoft are C corps, and according to Monson, because of complexities, formalities and taxes, there's really no reason dance studios need to be. So, let's just go ahead and cross that one off our list of options.

"A dance studio should want to be an S Corp or an LLC," he says. "There are advantages and disadvantages to both. An S Corp has some formalities and administrative headaches to it, but it's single taxation. Meaning, when money comes in, it's only taxed once. LLCs don't have a lot of formality to them, but the downside is you have to pay self-employment tax. For example, if your dance studio makes $100,000 you will be taxed on that as income tax, and then all of that will also be subject to self-employment tax. I recommend that if people have an LLC, they do an S-election. If you do this, you can be taxed as though you're an S Corp, meaning you pay yourself a salary, and only pay self-employment taxes on that salary rather than the full $100,000. Bottom line and most importantly, if you register as one of those, if someone sues you, your investment in the company will be at stake, but none of your personal assets."


2. Owning Your Own Studio Space

If you own or are planning to buy the space your studio is in, make sure you have the real estate in a separate legal entity than your dance studio.

"I cannot underscore this enough: For liability protection, studio owners have to buy the building with a different legal entity than the dance studio entity," Monson says. "If someone gets hurt or a teacher is inappropriate, and the dance studio owns the building, someone who sues can collect on the judgement through the building. If the dance studio doesn't own the building, there is nothing to collect against."

Monson recommends you set up your dance studio as an LLC or an S Corp, then set up a separate company to buy the real estate and have the studio rent from that other company.

Confused? Let's clarify: You own both businesses, so when the studio pays rent to the company that owns the building, it's actually just you paying money to yourself each month. This way if, say, a teacher sues for wrongful termination, they can't collect against the building.


3. Independent Contractors Versus W2 Employees

A lot of dance studios want to pay their teachers as 1099 contractors in order to save on taxes. If they pay teachers as 1099 contractors, the teacher has to pay all of their social security and medicare taxes on their own, and the employer isn't responsible for them. If they pay their teachers as W2 employees, the studio pays for half of their social security and Medicare taxes, while the employee pays the other half.

"The problem with that is there are limitations and guidelines about when you can pay someone as a 1099 contractor and when you can pay someones as a W2 employee," Monson says. "If you have regular teachers at your dance studio, the IRS will likely disagree with you and see them as W2 employees. If that's the case, you will have to pay penalties and back taxes for everyone you misclassified. It can be a huge financial headache. I know of three or four studios who were audited by the IRS and had to shut down or sell their business because of this."


4. Noncompete, Nonsolicitation and Confidentiality Agreements

This subject can get a little touchy—and rightly so. Check out Monson's recommendations and see if they might be a good fit for your studio.

"Have a confidentiality agreement in which employees agree not to share things like marketing strategies, business plans, how much you pay people, client contact information or other confidential information that could be used to your detriment," Monson says. "Include a nonsolicitation agreement in that same document. This agreement means that, if they leave your studio for whatever reason, they won't solicit your clients or other employees to leave with them and go to another studio. A noncompete agreement can be included in this as well, but you will have a hard time convincing a court to enforce it. At our studio, we don't stop people from starting a competing business, but we try to stop them from contacting our clients. We pay them to establish a relationship with our students, so it's only fair that we have an amount of time to protect our relationship with them."

Monson recommends you set up an agreement that says they can't contact the customers of your studio for one to two years after they leave your business.

"I know it's money to talk to an attorney, but if you do it up front and make sure you have this stuff covered, you will save yourself from heartache and headaches in the future."

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Studio Owners
Courtesy Tonawanda Dance Arts

If you're considering starting a summer program this year, you're likely not alone. Summer camp and class options are a tried-and-true method for paying your overhead costs past June—and, done well, could be a vehicle for making up for lost 2020 profits.

Plus, they might take on extra appeal for your studio families this year. Those struggling financially due to the pandemic will be in search of an affordable local programming option rather than an expensive, out-of-town intensive. And with summer travel still likely in question this spring as July and August plans are being made, your studio's local summer training option remains a safe bet.

The keys to profitable summer programming? Figuring out what type of structure will appeal most to your studio clientele, keeping start-up costs low—and, ideally, converting new summer students into new year-round students.


Find a formula that works for your studio

For Melanie Boniszewski, owner of Tonawanda Dance Arts in upstate New York, the answer to profitable summer programming lies in drop-in classes.

"We're in a cold-weather climate, so summer is actually really hard to attract people—everyone wants to be outside, and no one wants to commit to a full season," she says.

Tonawanda Dance Arts offers a children's program in which every class is à la carte: 30-minute, $15 drop-in classes are offered approximately two times a week in the evenings, over six weeks, for different age groups. And two years ago, she created her Stay Strong All Summer Long program for older students, which offers 12 classes throughout the summer and a four-day summer camp. Students don't know what type of class they're attending until they show up. "If you say you're going to do a hip-hop class, you could get 30 kids, but if you do ballet, it could be only 10," she says. "We tell them to bring all of their shoes and be ready for anything."

Start-up costs are minimal—just payroll and advertising (which she starts in April). For older age groups, Boniszewski focuses on bringing in her studio clientele, rather than marketing externally. In the 1- to 6-year-old age group, though, around 50 percent of summer students tend to be new ones—98 percent of whom she's been able to convert to year-round classes.

A group of elementary school aged- girls stands in around a dance studio. A teacher, a young black man, stands in front of the studio, talking to them

An East County Performing Arts Center summer class from several years ago. Photo courtesy ECPAC

East County Performing Arts Center owner Nina Koch knows that themed, weeklong camps are the way to go for younger dancers, as her Brentwood, California students are on a modified year-round academic school calendar, and parents are usually looking for short-term daycare solutions to fill their abbreviated summer break.

Koch keeps her weekly camps light on dance: "When we do our advertising for Frozen Friends camp, for example, it's: 'Come dance, tumble, play games, craft and have fun!'"

Though Koch treats her campers as studio-year enrollment leads, she acknowledges that these weeklong camps naturally function as a way for families who aren't ready for a long-term commitment to still participate in dance. "Those who aren't enrolled for the full season will be put into a sales nurture campaign," she says. "We do see a lot of campers come to subsequent camps, including our one-day camps that we hold once a month throughout our regular season."

Serve your serious dancers

One dilemma studio owners may face: what to do about your most serious dancers, who may be juggling outside intensives with any summer programming that you offer.

Consider making their participation flexible. For Boniszweski's summer program, competitive dancers must take six of the 12 classes offered over a six-week period, as well as the four-day summer camp, which takes place in mid-August. "This past summer, because of COVID, they paid for six but were able to take all 12 if they wanted," she says. "Lots of people took advantage of that."

For Koch, it didn't make sense to require her intensive dancers to participate in summer programming, partly because she earned more revenue catering to younger students and partly because her older students often made outside summer-training plans. "That's how you build a well-rounded dancer—you want them to go off and get experience from teachers you might not be able to bring in," she says.

Another option: Offering private lessons. Your more serious dancers can take advantage of flexible one-on-one training, and you can charge higher fees for individualized instruction. Consider including a financial incentive to get this kind of programming up and running. "Five years ago, we saw that some kids were asking for private lessons, so we created packages: If you bought five lessons, you'd get one for free—to get people in the door," says Boniszewksi. "After two years, once that program took off, we got rid of the discount. People will sign up for as many as 12 private lessons."

A large group of students stretch in a convention-style space with large windows. They follow a teacher at the front of the room in leaning over their right leg for a hamstring stretch

Koch's summer convention experience several years ago. Photo courtesy East County Performing Arts Center

Bring the (big) opportunities to your students

If you do decide to target older, more serious dancers for your summer programming, you may need to inject some dance glamour to compete with fancier outside intensives.

Bring dancers opportunities they wouldn't have as often during the school year. For Boniszewski, that means offering virtual master classes with big-name teachers, like Misha Gabriel and Briar Nolet. For Koch, it's bringing the full convention experience to her students—and opening it up to the community at large. In past years, she's rented her local community center for a weekend-long in-house convention and brought in professional ballet, jazz, musical theater and contemporary guest teachers.

In 2019, the convention was "nicely profitable" while still an affordable $180 per student, and attracted 120 dancers, a mix of her dancers and dancers from other studios. "It was less expensive than going to a big national convention, because parents didn't have to worry about lodging or travel," Koch says. "We wanted it to be financially attainable for families to experience something like this in our sleepy little town."

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