DBA vs. LLC: Everything You Need to Know
When considering whether a DBA or an LLC is the best entity type for your business, it is best to look at the benefits that each offer. 5 min read
DBA vs. LLC
Starting a business means knowing things like what a DBA is vs. an LLC. Understanding the difference helps you to know your level of legal protections.
DBA: What Is It?
A DBA (doing business as), also referred as an assumed business or trade name, is a fictitious business set up by an individual who wishes to conduct business trade under a different name without having to create a separate business entity.
LLC: What Is It?
An LLC, or a limited liability company, operates essentially as a corporation, sole proprietorship, and partnership all in one. An LLC affords its members with limited liability, as they cannot be held personally liable for the company’s debts.
Consider the Right Things for your Business
When beginning your business, it is important to consider which entity type would be most suitable for your business. A DBA is less expensive to initiate and maintain, while the advantages of an LLC come in the form of the business benefits and protection. As the benefits of a DBA and LLC vary, it's important to talk with a legal advisor or accountant before settling on your ultimate choice.
Benefits of an LLC
An LLC is a sole legal entity; the name you choose for your LLC is the legal name of your company. This means that the name of your company is the name you will use when conducting business. Some benefits of an LLC include:
- Being registered as an LLC can help you gain credibility with potential customers, vendors, partners, and employees.
- An LLC offers protection against personal liability, including personal assets; therefore, an LLC is the preferred business type when liability is an issue, i.e. when the company hires employees.
- Owners will not be personally liable for decisions or actions taken by the LLC.
- When your company expands, seeking funding is a much more straightforward process. It’s much easier to sell an LLC than a DBA, which generally cannot be sold.
Benefits of a DBA
A DBA provides its own benefits to a business owner, including one main feature: It allows you to assume a different business name when conducting business. Therefore, if you plan on performing trade under an assumed name, then a DBA business entity is the right choice for you.
For example, if you named your company as your legal name (e.g. John Smith Company) and your type of business trade is in wood products, a DBA affords you to legally use a fictitious name (such as Industrial Wood Products) to do business. In other words, a DBA gives you the right to do business legally under an assumed name. And if you decide that you want to incorporate the DBA name to be used as a separate legal entity, you can do so once you legally use your DBA.
Contrary to an LLC, a DBA is not its own separate legal entity, and there is liability for the owner conducting business under the DBA.
Distinctions Between a DBA vs. LLC
The costs of registering a DBA are less than that of an LLC. Sole proprietors that do not want to pay the LLC fees and dedicate the time to fulfilling the subsequent requirements may choose a DBA, as they can still promote their brand and business. Furthermore, if you choose a DBA, it requires fewer legal procedures and registrations to follow.
A DBA is not a separate legal entity, whereas an LLC is registered as a sole legal entity under the law with a separate legal existence from its owner. Therefore, the requirements and rules for creating an LLC versus a DBA are different.
As always, it is recommended to consult a legal professional prior to registering your business as a DBA or LLC.
Forming an LLC
LLCs are formed under state laws — which vary state by state — when an individual files the Articles of Organization with the Secretary of State’s office in the state you choose to register. A name availability check can be conducted on the Secretary of State’s website in order to ensure that the name is not currently being used. An LLC business owner is required to report any changes in address, membership, or service and must also file an annual report that includes important business and financial information.
The legal name of an LLC lasts until the business is dissolved. Once an LLC is in existence, the owner has the option of also filing a DBA to conduct business under a name different than the registered LLC business name.
Registering a DBA
The purpose of registering a DBA is to ensure transparency in the identity and business transactions of the company and the owner. The official name of the corporation or LLC is not changed under a DBA; rather, it only allows the company to use a different name when doing business.
DBAs must also be registered under state laws; however, the required documentation needed to register as a DBA is much less demanding than that for an LLC. A Certificate of Assumed Name needs to be filed by the business owner with the register of deeds in the county where the DBA will conduct business. It must be noted that under some state laws there are additional documents to file or the filing must take place with the secretary of state or corporations. If your initial company is a foreign corporation or LLC, then additional filings may be necessary at the state level.
Depending on the state where the DBA is registered, the DBA filing may expire after a specified period of time. If this occurs, the underlying business needs to renew the DBA certificate with the same government agency where the original filing took place.
The members of an LLC can choose whether they want to be taxed as a sole proprietorship, corporation, or partnership. LLC members owe Social Security and Medicare taxes, but such taxes can be paid through the members’ self-employment tax form. There may be certain tax deductions that an LLC owner can use that cannot be deducted through a DBA. On the contrary, the DBA confers no special income tax status, meaning the owner must pay taxes in accordance with its own filing status.
If you need additional help learning more about the difference between a DBA and LLC, or if you are interested in establishing a DBA or LLC, 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, Stripe, and Twilio.