Frequently Asked Questions About DBA vs LLC: What You Need to Know
Are you thinking about setting up your own business3 min read
Are you thinking about setting up your own business? If so, you’ve probably heard the terms “DBA” and “LLC” -- but do you understand the differences between the two? To make the most informed decision, it is important to understand how a DBA and an LLC are structured and the differences between the two.
A “DBA” or “Doing Business As” is a method of registering a trade name to a company. Basically, a DBA allows you to conduct business using a name other than the name listed on your business’s registration papers. This can be accomplished by filing a DBA with the county or state in which you plan to operate under the alternate name. For example, if you run a sole proprietorship or partnership established under your own name and wanted to do business as “Acme Consulting Services”, you could file for a DBA.
An LLC, or Limited Liability Company, is a business structure created by states for businesses seeking protection from liability and other business interests. An LLC provides protection for its members from personal liability for debts incurred by the LLC. It provides the same liability protection of a corporation, but with fewer hassles and less paperwork. Members of the LLC “share” in the ownership of the LLC and divide the profits or losses.
When considering DBA vs LLC, one thing to keep in mind is that a DBA will offer no protection from personal liability and does not offer any form of protection from personal bankruptcy. That is, if your DBA business incurs a debt or faces a lawsuit, any assets you own, as an individual, can be used to satisfy the debt or lawsuit in question.
Additionally, operating a DBA does not provide you with any tax benefits. Your income and expenses will still be reported on your personal tax returns, and you will be responsible for paying self-employment taxes in addition to federal and state income taxes. You also must file a DBA certificate with the state in order to operate your business legally and pay any associated fees.
By contrast, an LLC offers both personal liability protection and certain tax benefits. Member of an LLC are not held personally liable for debts incurred by the LLC. This means that if the business is sued, member’s personal assets will not be at risk. Additionally, an LLC generally offers more potential for tax savings. Depending on the state, an LLC may be an eligible entity to avoid paying state and local income taxes, or may provide other deductions for business activities. Depending on how you structure the LLC and the activities of your LLC, the members may also be eligible for single-member LLC tax status.
Ultimately, the decision of whether to choose a DBA or LLC will depend upon your individual goals and the type of business you have. If you are looking for an easy and inexpensive way to register a business name, then a DBA may be a good option for you. However, if you want to protect yourself from personal liability and potentially benefit from additional tax savings, then an LLC may be the best choice for you.
When deciding between DBA vs LLC, it is important to understand the differences between the two. If you are based in Los Angeles and are looking for attorneys who understand local regulations, consider working with UpCounsel. UpCounsel has an experienced network of lawyers that can help you choose the right business structure for your needs and protect your interests.
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