DBA vs LLC: What’s the difference?
Whether you are launching a new business venture, preparing to expand an existing enterprise, or looking to rebrand, there are many legal considerations to take into account. This includes determining how to register your company name.
Two common methods include forming an LLC (limited liability company) or applying for a DBA (doing business as). Each of these options has its benefits and drawbacks, so it is important to understand how both can affect the way a company conducts its operations before making a choice.
The following guide compares the similarities and differences between a DBA and an LLC to help you decide which is best for your company.
Distinctive limited liability service offers
What is a limited liability company?
An LLC is a type of business structure that allows a company to operate independently from its owners. As a separate legal entity, an LLC may sign contracts and hold property on its behalf. This helps maintain a strict distinction between the LLC’s business affairs and the owners’ personal affairs.
In most states, creating an LLC involves filing an article of organization and drafting an operating agreement. Business owners will also need to choose and register a business name.
However, before doing so, they should research the names available in the state where the LLC will be established to avoid choosing the same name as an existing corporation. In addition, the phrase “LLC” or an abbreviated version must be included at the end of the name.
Advantages of an LLC
- Flexibility with taxes.
- Liability protection for personal assets.
- Exclusive rights to the brand name within the country.
- No management restrictions.
Disadvantages of LLC
- Less attractive to investors.
- It is difficult to transfer ownership.
- Self-employment taxes.
- Raising fees.
What is dB?
DBA is a legal title that companies may use when they want to operate under a different title than their official entity designation. This may also be referred to as a trade name, fictitious name, or pseudonym. The primary purpose of the DBA is to ensure that the public is able to verify the identity of a company owner if a problem arises.
Whether a company should file a DBA depends on its business structure and local requirements. Business owners can register a DBA with the appropriate state, county, or city agency by filing the appropriate paperwork and paying a registration fee. Some states and counties also require the DBA to be published in a local newspaper to provide public notice of the new name.
- No liability protection.
- No tax incentives.
- Does not provide trademark rights.
What do an LLC and a DBA have in common?
Both LLCs and DBAs allow businesses to create a distinct identity apart from their owners. Once an LLC is legally formed, all of its operations are conducted under the name that has been registered with the state. For sole proprietorships and general partnerships, a DBA is necessary to avoid having to run the business under the owner’s personal name.
Simple setup process
LLCs and DBAs are relatively easy to register. In most states, business owners can fill out paperwork and file either option online. To keep your LLC in good standing, registrations must be renewed on an annual or semi-annual basis in most states. DBAs are usually due for renewal after five years, but this can vary by state.
What are the main differences between an LLC and a DBA?
Unlike an LLC, a DBA is not a type of business structure. It gives companies the opportunity to use an alternative name for their operations. LLC formations create companies as legal entities with their own rights and responsibilities.
DBAs do not provide a shield against personal liability on their own. Therefore, even though the DBA registers a sole proprietorship or general partnership, business owners can still be held liable for the company’s debts and legal obligations.
This means that if someone files a lawsuit against the company, the owner’s personal assets could be at risk. On the other hand, since LLCs are considered separate from their owners, personal assets are protected from creditors and lawsuits.
The registered name of a DBA has no effect on the taxation of a business entity. As such, sole proprietorships and general partnerships must report the company’s income and expenses on their individual tax returns. In contrast, DBAs do not come with any tax benefits.
However, LLCs provide tax flexibility. These companies can choose the tax structure that will benefit them most. They are also taxed as pass-through entities, so profits pass through to members to be reported on their personal tax returns.
While DBAs give businesses more options when choosing a name, they will not prevent other businesses from using the same name unless the owner also files for a trademark. If many companies within a market operate under duplicate names, this can create confusion among consumers.
Conversely, registering an LLC automatically provides trademark security, preventing all businesses in the state from having the same title.
What is best for your business?
LLCs and DBAs can give you the opportunity to run your business under a name other than your legal name, but they work in very different ways. Before deciding which option is best for your company, it is important to evaluate the different aspects of each option. This decision will greatly impact the way your company operates as a whole.
When should you choose an LLC?
An LLC is usually the best choice for businesses in industries with high liability risks. This is also the case when hiring employees since having people working for a company increases the chances of it getting involved in legal disputes. Therefore, if you are concerned with maintaining separation between your personal and business assets, you will benefit from the protection of a registered LLC.
Creating an LLC is also a good idea if you want tax and administrative flexibility, as well as the ability to ensure that no other company can take advantage of your hard work or the reputation you’ve built using the same name.
When should you choose a DBA?
DBAs can be ideal for business owners who prefer a less expensive and more straightforward alternative to creating a separate legal entity. This is generally the easiest way to obtain a pseudonym for a sole proprietorship or general partnership when the entrepreneur does not want to operate under his or her personal name.
In some cases, it may make sense to register a DBA even if you have already created an LLC. Doing so can allow you to grow or rebrand your operations with new products and services. A DBA also provides a good solution for differentiating between multiple businesses you may operate without having to form an individual entity for each.
Distinctive limited liability service offers
Frequently Asked Questions (FAQ)
However, you may consider it if you want to manage multiple businesses under one LLC umbrella or if you are looking to stand out more in your marketing efforts.
When it comes to keeping personal assets safe, your DBA will have liability protection if used with an LLC. This is because DBA registration will not affect the type of entity under which your business is organized.
- Determine if there is another business with the DBA name. DBA registration will not prevent other companies from forming an LLC with the same name. Therefore, you will need to do research to verify that your DBA name is not being used by another company in your state. If not and it meets local requirements, you can continue to use that name for your LLC, otherwise you will have to amend or change it.
- Submit the correct paperwork for the LLC. Along with the LLC application and registration fee, you will need to submit organizational materials. This must include the business name Registered agent Their contact information, company name and address, and details about how the LLC works.
- Apply for a (Employer ID number). If you don’t already have an EIN for your business, you may need to apply for one. The IRS requires LLCs to obtain an Employer Identification Number (EIN) if they employ employees or have tax liabilities.
- Learn what to do about your DBA. Some states may require that your DBA be canceled and dissolved if you do not intend to continue using it. Other states may allow you to allow your registration to expire. The Secretary of State can explain what action you should take.