LLC and DBA: Everything You Need to Know
LLC and DBA are terms that come up when starting a business. An LLC (limited liability company) is a form of business that is legally separated from its owners.3 min read
LLC and DBA are terms that come up when starting a business. An LLC, or limited liability company, is a form of business that is legally separated from its owners. An owner can do business under a different name, or a DBA, which stands for "doing business as." You will need to know what sets these terms apart in order to use either term when conducting business.
To form an LLC, you must file with a business registrar in your state. You must use a name not already used by someone within the state, and it must include either “limited liability company” or “LLC” at the end. By registering a name, you let people know what kind of structure your business has. After approval, your business's name can be used in all legal documentation, and products or services can be provided using the name.
Benefits of an LLC
LLCs offer protection over owners' personal assets. The members, or owners, of the LLC aren't held responsible for anything the LLC does. If you will be hiring employees, fear the chance of liability, and plan on seeking investors, starting an LLC (as opposed to other business types) would be beneficial.
DBAs are not real business names; therefore they don't have the same benefits as an LLC. Every state has regulations concerning DBAs and their usage. LLCs have the flexibility of using a DBA instead of their legal name. The DBA must be registered in the event that a problem needs resolving. If you move your LLC to another state, you cannot use the same DBA without registering it in that state.
Advantages and Disadvantages of Using a DBA
A DBA can be used in two situations.
- Sole ownership or partnership: You will need to register a DBA if you want to use another name for business reasons. You don't need to become an LLC. A DBA does not need to deal with formalities placed on corporations.
- Corporation or LLC: Your LLC and DBA can use the same EIN as long as they have the same owners to avoid any issues with the IRS. Some states require you to register your business as an LLC. You can do business with a legal name or DBA, but there can be times when the use of your business's legal name can cause problems. There may be consequences if you don't check a state's registration requirements and its business laws.
When deciding whether to use a DBA, keep the following points in mind:
- No Naming Rights: You won't have official business name rights with a DBA if you aren't incorporated. Anyone with a legal business can take the DBA name despite the number of years it has been used.
- No Legal Protections: A business that only registers a DBA doesn't have legal or limited liability protection, nor does it have the tax benefits of an LLC. The right legal advice will help you stay out of trouble.
- County vs. State Level: Some states don't require a DBA to be registered, but it would be beneficial to check whether your state requires it. County-level registrations only protect your DBA locally.
Start-Up and Maintenance Costs
There are certain costs associated with DBAs and LLCs. These costs are determined by the state, with DBAs costing less than LLCs. DBAs have a one-time registration fee and the usual renewal fee every five years. LLCs typically pay state taxes, which are mostly fixed amounts.
Maintaining LLCs and DBAs
Upkeep and legal use of both entities are very important factors to consider. Some states need LLCs to report themselves every so often. If they don't, fines can be placed, and the LLCs will no longer have the ability to do business. If a DBA is not renewed, the usage rights and registration will be lost.
If I Have an LLC, Do I Still Need a DBA?
You don't need to register both an LLC and a DBA, but you could use both if you want to do business under another name. To add the protection of your LLC, you will need to get an Assumed Business Name. If your state doesn't have this option, you can register a DBA.
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