DBA Vs Corporation: Everything You Need to Know
Oftentimes when someone is just starting a business, they wonder about the advantages and disadvantages of filing as a dba vs corporation.3 min read
DBA vs Corporation
Oftentimes when someone is just starting a business, they wonder about the advantages and disadvantages of filing as a dba vs corporation.
What is a DBA?
A DBA, or “doing business as,” is often referred to as a trade name, which can be different than a business’s official name. For example, if a business is classified as a sole-proprietorship or a general partnership, the business’s name will be the owner or owners’ name(s). But, if the owners want to conduct business under a modified name, they must file a DBA. Corporations can file a DBA as well if they want to conduct business under a different trade name. In that case, the corporation must file for a DBA in the state where it is incorporated.
Typically, a “doing business as” name is filed at the municipal-level, but there are some state-level DBA filings as well.
How Can You File a DBA?
If you are thinking of filing a DBA, you must fill out an application with correct state or municipality that will have jurisdiction over your business. This is typically the geographic area where you will be conducting business transactions. Once your DBA is registered in that area, it will prevent another business from using the same DBA in that location. It should be noted that different states have different rules. For example, South Carolina only allows foreign entities to register as a DBA. Other states like Alabama and Arizona do not require a formal registration in order to operate as a DBA.
How Can You Revoke a DBA?
If a business no longer wants to operate as a DBA, it must cancel its DBA registration with the state or municipality where it originally filed the application. The exact requirements for canceling a DBA varies by state. For example, if a business wishes to rescind its DBA in Utah, it must submit a written cancellation letter and send it to the state’s Division of Corporations & Commercial Code. Other states have specific forms a business needs to fill out. Some states require a business to cancel its DBA if any of the owners change or if the business no longer operates.
A DBA will cancel automatically if, at the end of the registration term, the business does not renew it. Again, registration terms differ depending on what state you are in. For example, a business only has to renew its DBA once every five years in Florida, but in Minnesota it must renew its DBA annually.
What is a Corporation?
A corporation is its own separate entity, distinct from any of the owners. By incorporating your business, the owners are protecting themselves from any debt or litigation that involves the corporation. This protection is often referred to as the “corporate shield,” because it protects the personal assets of the owners.
A corporation must meet certain requirements. Every corporation must consist of:
• Directors (at least one)
• Officers (at least one)
One of the disadvantages of a corporation is that because a corporation is a separate entity, the corporation’s owners will need to file both a personal tax return, and a business tax return. This “double taxation” often acts as a disincentive to a small business owner who cannot afford to pay taxes on both the corporation’s profits and on those profits when they are distributed to shareholders.
Advantages and Disadvantages of a DBA v. Corporation
The cost of registering for a DBA varies by state, but in almost every case, filing a DBA will be significantly cheaper than filing and maintaining a corporation. Not only are the filing fees more expensive, but the requirements to maintain a corporation can add up as well.
However, one of the biggest benefits of incorporating a business involves personal liability protection. Because a corporation is considered its own entity separate from its owners, any liability of the corporation cannot be transferred to its owners (except in extreme circumstances). By contrast, a DBA provides no personal liability protection since it is only a separate trade name and not a separate entity.
If you need help deciding whether to register as a DBA or incorporate, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.