Starting Your Business – Understanding the Differences Between DBA and LLC
Starting a business is both an exciting and challenging task3 min read
Starting a business is both an exciting and challenging task. With so many options available in setting up businesses it can be difficult to know what structure to choose for your new venture. Understanding the differences before taking the next steps can help you avoid costly mistakes as a business owner. Two common structures for businesses are a DBA, or “Doing Business As”, and LLC, or a Limited Liability Company. Each structure has its own advantages and disadvantages, making it important to understand the implications of each before embarking on your new business venture.
What is a DBA and What Does it Mean?
A DBA, or “Doing Business As”, is a type of business structure where a person or company can assume an alternative name for their business without changing their legal or tax status. This essentially allows an individual to do business under a new name but still operate within the same structure as their existing business.
In order to register a DBA, you must first meet the requirements for your state. In New York, registering a DBA is handled by the New York Department of State, Division of Corporations, State Records and Uniform Commercial Code. After registering, you must maintain your business according to the requirements set forth by the state, including filing periodic reports to keep the state informed of any changes to the business.
Benefits of DBA
One of the primary benefits of registering a DBA is that it allows you to take on a new name for your business and create a separate identity without having to file the paperwork for a separate legal entity. This means you are not typically liable for any debts or liabilities of the business, which can be a major advantage in some cases. Additionally, registering a DBA can make it easier to advertise your business under a different name as well as to establish separate bank accounts, if desired.
What is an LLC?
An LLC, or limited liability company, is a type of business structure that provides the owners with limited liability. This means that the owners are not personally liable for any debts or liabilities incurred by the company. An LLC can be formed by one or more individuals, and in most states, you must register your LLC with the Secretary of State before starting operations. The laws regulating LLCs vary from state to state, so it is important to consult your state’s guidelines for setting up an LLC.
Benefits of an LLC
One of the primary benefits of an LLC is the limited liability feature, which shields the owners of the company from any personal liability associated with the company’s activities. Forming an LLC also provides protection from creditors and ensures that the assets of the company remain separate from the personal assets of the LLC’s owners.
Another benefit of LLCs is that they may provide more tax breaks than other business forms. For example, an LLC can be “pass-through”, meaning the profits and losses of the business flow directly to the personal income tax returns of the LLC’s owners. Additionally, in most states an LLC must file the appropriate tax forms with the state, but there is no requirement to file a separate tax return.
When setting up a business, it is important to understand the pros and cons of the available options. Understanding the differences between a DBA and an LLC is essential to making a well-informed decision when selecting a business structure for your new business. A DBA “Doing Business As” may be a good option for an individual wishing to conduct business under a different name without setting up a separate entity. An LLC, or limited liability company, provides the benefit of personal liability protection for its owners, as well as certain tax advantages not available with some other business structures. Working with an experienced attorney to form your business is always the best option when setting up a business, as they will be able to advise you on the best options to suit your needs.