Taking seriously the legal issues of life coaching puts you in the league with professional coaches. You want to be set apart from the legions of untrained, unqualified folks who simply put up a website and label themselves a coach. The legal aspect can be complex and intricate (hey, we’re talking about government taxes here, of course it gets complex), so I’m giving you a simplified version of the most important legal issues you need to be aware of.
Disclosure: I am not a lawyer. The information provided here should not be construed as legal advice. You are responsible for seeking licensed legal counsel. I highly recommend you plan, at minimum, on getting a CPA to help you start on the right foot.
There, now that we’ve covered the disclaimer, here are some of the basic legal issues you’ll need to consider:
Is Life Coaching Legal?
Life coaching is a legal, legitimate business service. It is not regulated however. There is no federal oversight, no licensing agency that requires proof of competency.
For that reason, a lot of people get into coaching thinking it is a quick and easy way to make money doing little work. Those people give sub par service to their clients and give the whole industry a bad name. That tends to bring up question of whether or not it should be legal or not.
As a life coach you also need to be very clear that you are not offering any form of counseling or therapy. Those are regulated, licensed professions that have the awesome responsibility of caring for people’s mental health. Coaches should limit themselves to only working with people who are already mentally healthy and who are forward looking.
Life coaching becomes a legal issue when coaches stray into counseling. There is a life coaching agreement template here.
Types of Life Coach business structures
Starting a corporation, sole proprietorship or other business form in your municipality- The exact structure best for you is a question to ask your CPA or lawyer – NOT some stranger in a Facebook group. Please save yourself from a potential legal and tax disaster by investing in professional advice.
File your business with the state or municipality. Many times this is a super easy form that you can do yourself. Certainly don’t pay an online service or lawyer thousands of dollars to fill out a simple information form for you until you look it over and see if you can do it yourself.
Life Coach Insurance
Determine what liability insurance you need in your location. This varies widely from state to state and country to country so I can’t make any recommendations.
If liability insurance is not mandated, you’ll have to decide what your risk tolerance is and based on your ideal client, what is your exposure to risk? In today’s society, there is propensity to blame others for our failures and suing a coach when the client’s life goes in a wrong direction is not unthinkable. This is a great topic for that free consultation meeting many lawyers offer!
Life Coaches and Taxes
Find that CPA who is a tax professional to help you set up your tax structure. Not all CPA’s do taxes regularly so they don’t necessary keep up on all the changes. Find one who specializes in taxes. They can help you decide what type of corporation or sole proprietorship to form as well.
Paying a CPA may seem like a huge expense, but they will find tax deductions you never thought of and they can clarify what is a hugely confusing tax law.
Filing business taxes under your own name, without the signature of a qualified professional is a great way to increase your chances of an audit! A professional can help you avoid the stupid omissions and errors that trigger many audits in the first place
Life Coach Website Disclaimers
If you are going to set up a website, you will need several legal pages on your website as well
- Terms of service
- Privacy Statement (also known as GDPR, which details all the ways you gather, store and use any information a client might give you such as personal data, credit card numbers and the like)
These can be purchased as a packet of life coach legal disclosures
Please do NOT just copy them from someone else’s website. 1 – it’s illegal, 2 – those forms may well have been created with wording that is specific to that business and 3 – the privacy policies especially, have been recently changed and continue to change. You will want the most recent compliance statements and the source above will provide the most recent version as well as updates to them as needed.
I hope this doesn’t sound harsh or discouraging. I sincerely want to help you start a professional business and the moment you accept your first payment, you are in business. If you treat it like a business right from the start you will save yourself from potentially tens of thousands of dollars in fees and penalties.