LLC vs DBA Pros And Cons: Everything You Need to Know
Reviewing LLC vs. DBA pros and cons before making a decision about what type of business you want is essential. You should first understand the definition of each type.3 min read
Reviewing LLC vs. DBA pros and cons before making a decision about what type of business you want is essential. You should first understand the definition of each type.
An LLC (limited liability company) formed with the state exists separately from its owners. This offers numerous benefits and greater protection and is often recommended if liability may be a concern or if owners plan to hire employees in the future. LLCs are often easier to expand and sell.
A DBA (doing business as) is an LLC, corporation or partnership operating under an assumed name. Since this option is not a separate legal entity, owners become liable for all company debts and operations. A DBA is often an attractive option for website owners who would like to conduct business under their domain. Though you will form your LLC under a legal business name, you may wish to do business under a DBA.
What Is a DBA?
DBA stands for "doing business as" — which is represented by a fictitious or assumed name. Whether you are running a partnership, a sole proprietorship, or an LLC, you may wish to conduct business under a name that differs from your legal name. In most states, this process can be completed by registering a DBA.
When choosing a DBA, there are restrictions. You cannot use words that insinuate the business is anything but a DBA, such as "corporation" or "LLC." When operating under a DBA, you will be personally liable for all company debts. If there are additional owners involved, you will be classified as a general partnership.
A DBA is NOT its own legal business entity, however, it allows owners to operate as a business based on the name chosen. A DBA will differ from a company's legal name or an owner's personal name. To complete this process, little formality is involved.
What Are the Disadvantages of a DBA?
When comparing a DBA an LLC the main disadvantage is a lack of liability protection. If you are currently operating your business under an assumed name, know that you do not have personal liability protection. Overall, the disadvantages of a DBA include:
- As an owner, you are personally liable for all debts accumulated by your business
- As an owner, you do not exclusively own rights to your name
What Is An LLC?
When you form an LLC or "limited liability company," you will own and operate a legal entity. Offering the flexibility of a partnership with the liability perks of a corporation, this is a popular business structure. Essentially a hybrid between a corporation and partnership, owners enjoy "pass-through" taxation and flexible management.
First created in 1977 in the state of Wyoming, LLCs are now recognized in all 50 states. This structure has grown in popularity since, due to the freedom associated with a corporation — without needing to do intensive bookkeeping. As an LLC, you can decide to manage the company yourself or designate managers to address daily operations.
Once you have formed an LLC, you can only operate under its legal name. In most states, this will require you to check the availability of your desired name(s) prior to forming. Although operating an LLC is less formal than running a corporation, an operating agreement is still highly recommended. Outlining all of the rules for operation, this document is particularly important as your company grows.
Difference Between DBA & LLC
The main difference between a DBA and LLC is whether or not you require limited liability protection. This is because an LLC is considered to be a separate legal entity. In comparison, when registering a DBA, there is no distinction between the business assets and your personal assets as an owner. Although there are fees associated with both a DBA and an LLC, overall costs are typically lower for DBAs.
Overall, an LLC is a legal, yet flexible entity that is easy to manage. If you are simply looking to form an individual brand, a DBA may be best suited for your current needs. While focusing on the cons of an LLC, taxation can be complex and there are more requirements in comparison to a DBA. With that being said, if you are operating under a DBA, it will be easy for others to copy you because the name itself is not protected.
If you cannot decide whether or not to register a DBA or an LLC, it is best to speak to your legal representative.
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