DBA vs. LLC: What to Consider When Choosing a Legal Structure
Starting a business can be an exciting yet daunting prospect2 min read
Starting a business can be an exciting yet daunting prospect. One of the most important decisions entrepreneurs have to make right off the bat is selecting an appropriate legal structure for their business. While limited liability companies (LLCs) are the most popular legal entity in the US, there are certain circumstances where a doing business as (DBA) might be a better fit. In this article, we look into the differences between a DBA vs. LLC and what factors to consider when making the choice for your business.
Choosing the right legal structure for your business can be critical in setting it up for long-term success. Decisions that entrepreneurs should consider include structuring taxes, protecting personal assets, and obtaining financing. Many entrepreneurs start off their journeys with a doing business as (DBA). A DBA is a business trading name that does not have a separate legal entity and is registered with a local government agency. Alternatively, an LLC gives business owners limited liability protection against lawsuits and provides tax flexibility to the business owners.
When it comes to Dallas businesses, understanding the nuances of local regulations can be especially important. An experienced attorney or legal counsel can help walk through the various considerations when selecting a DBA vs. LLC. Whether you need a one-time consultation or an entire freelance legal department, UpCounsel’s network of experienced business lawyers can help. With access to high quality attorneys on demand, UpCounsel’s business attorneys have an average of 14 years of experience, and profiles of our online attorneys display client ratings and reviews of recent work.
Key Considerations for Selecting a DBA vs. LLC
The decision to form a DBA or LLC for your business largely depends on a range of factors:
1. Ownership: DBAs are not separate legal entities and have no owners. LLCs, on the other hand require at least one owner.
2. Liability Protection: A DBA does not offer any liability protection to its owners, while an LLC provides its owners with limited liability protection from debts and obligations of the business.
3. Taxes: DBAs are an attractive option for those with a single-member business and offer the same tax benefits as a sole proprietorship. LLCs, on the other hand provide tax flexibility for its members, such as the choice to be taxed as a partnership, sole proprietorship, or corporation.
4. Cost & Complexity: Setting up a DBA is usually a relatively low-cost and straightforward process compared to an LLC, which requires more paperwork and fees.
5. Administering the Business: Run your DBA as part of your personal organization, meaning you would report the income as personal income on your tax return, whereas with an LLC, it’s slightly more complicated as you need to elect how you'd like to be taxed.
Making the decision between a DBA and LLC requires a lot of thought and consideration. With the right legal counsel providing support, entrepreneurs can be confident they’ve chosen an entity that fits the needs of their businesses now and in the future.