Anyone starting a business needs protection.
“No matter what business you’re in or how much you’re making, a sole proprietorship would almost never makes sense,” says Martin Shenkman, a lawyer and CPA who helps people form businesses. “You need the liability limitations of a corporation or other entity,”
You could just hang a shingle outside your house and start a business. “But you really want the protection against liabilities you get from being set up as a business entity,” says the Paramus-based Shenkman. “Plus, you look more professional when you incorporate and you’re more careful about commingling personal and business money because you have to have a separate tax identification bank accounts, books and records.”
The challenge for many entrepreneurs, however, is knowing which business structure to select when forming a business — corporation, a subchapter S corporation, or an LLC.
“The LLC is now the primary entity structure for almost every new business,” he says. “It’s become a very popular tool.” However, many people have questions about the structure, its advantages, and the various documents you need to complete.
To help lawyers, CPAs, and anyone interested in starting a business, Shenkman will present “Limited Liability Companies Made Easy,” on Monday, June 22, from 9 a.m. until 4 p.m. at the Doubletree Hotel on Route 1 South. Cost: $169. For more information, call 732-214-8500 or E-mail email@example.com.
The program puts participants through a boot camp experience on the value of the LLC and why it’s the option Shenkman recommends for most people. “It gives you all the liability protection of a corporate structure, but it is simpler and better from a tax perspective,” says Shenkman, who often writes on legal and tax issues.
Relatively new, the LLC structure blends characteristics of a corporation and a partnership or sole proprietorship. It offers owners, who are called members, limited liability to separate them from the business while also allowing pass-through income taxation — meaning that members are not directly taxed. This hybrid approach is flexible while offering members many tax and estate planning advantages.
As a business structure, it has only been available since 1977, when Wyoming authorized the first one. Other states quickly followed. The Internal Revenue Service clarified its tax position and by 1996 nearly ever state had passed an LLC statute.
“Many attorneys still have questions about how to plan for a limited liability company. They are not always clear about which techniques to use. And business owners don’t always know what to ask their attorneys,” says Shenkman. “Sometimes you get in trouble by not knowing what to ask.”
Everyone attending Shenk-man’s boot camp gets an annotated version of the law. “No business owner wants to read the actual law, but he wants an interpretation. So I write notes on the documentation to make it easier to understand,” he says.
There also is a deep review of tax and estate planning issues. Because LLCs let you pass income through the business to your personal income tax, there are many opportunities and consequences associated with how you manage revenue. “There are many creative things you can do with income and estate taxes when you run your business as an LLC,” he says.
Shenkman also provides forms people need to properly establish and operate their business. While many forms are available on the Internet, Shenkman gives them away with advice and guidance. “Getting the forms is easy. The hard part is knowing how to tweak them for your situation and tax purposes,” he says.
With a law degree from Fordham University, he is licensed to practice in New York, New Jersey, and Washington, D.C. He also has an economics degree from Penn and an MBA in tax and finance from the University of Michigan. A CPA in Michigan, New York, and New Jersey, he has written 36 books on tax, legal, and estate planning issues and numerous articles for business and professional publications.
“There are few down sides to an LLC,” Shenkman says. LLCs are easier to operate. You don’t need to maintain minutes or bylaws. There are no stock certificates. You can simply file a certificate and start your business.
And your LLC can own any number of other LLCs. This would be valuable in a retail situation where someone owns multiple store locations. Shenkman says he would recommend the owner set up separate LLCs for each store, all of which are owned by the parent LLC.
For tax purposes, the LLC generally pays no federal or state income taxes. One downside of a corporation is the owner is taxed twice, once for the corporate income and once for the personal income earned through the corporation. With an LLC, all profits — and losses — are passed through to the members, who report the income on their personal income tax returns.
Shenkman credits his own thirst for knowledge for his desire to help others. He was raised in Detroit, where his father worked in the insulation business. “My parents were very civic minded and active in charities. At age 89, they are still active in helping charities,” he says.
“When I started off 25 years ago, I found it very disheartening. It was hard to find a program as a young lawyer to learn the nuts and bolts. Now I can help others. I can give young lawyers what I wished I could have found.”