What to Consider When Choosing Between an LLC or DBA in Chicago
Starting a business in Chicago3 min read
Starting a business in Chicago? Before you can start selling goods, offering services, and raking in profits, you need to decide what form of business ownership to choose. An LLC (limited liability company) and a DBA (Doing Business As) are two of the most common forms of business ownership and each one offers different benefits. Before making a decision, it’s important to consider the key differences between the two and how they might affect or impact your business.
An LLC is a business entity created at the state level. LLC stands for limited liability company, which basically means that the business’s owners will not be held liable for any of the company’s liabilities or debts. An LLC’s owners are called members, and any profits or losses are passed through the LLC to the members. An LLC is the more complex business structure and it's more expensive to setup and maintain.
On the other hand, a DBA is a simpler business structure created at the county level. Unlike an LLC, a DBA is not considered a separate legal entity from its owner, and therefore, owners are personally and legally responsible for any debts or obligations of the business. This means that if the business were ever sued or defaulted on a loan, the owner’s personal assets could be at risk.
When deciding between an LLC and DBA, it’s important to consider the following five aspects:
1. Liability Protection: According to Illinois law, LLC members enjoy limited liability protection. This means that owners' personal assets, such as a home, car, and bank accounts are protected from any liabilities or debts of the business. DBAs, on the other hand, do not offer this type of protection since the business is not a separate legal entity.
2. Professionalism: An LLC gives your business a level of professionalism that a DBA does not. Setup an LLC is generally more complex and requires more paperwork, but the benefits can be worth the efforts. An LLC can be referred to as a ‘professional’ business and will often be taken more seriously than a DBA.
3. Cost: The cost to setup a DBA is usually cheaper and faster than creating an LLC. However, it’s important to also consider the costs associated with ongoing maintenance of an LLC. An LLC requires more paperwork and reporting requirements on an ongoing basis, so the cost to maintain the LLC may be more expensive than a DBA in the long run.
4. Ease of Use: A DBA is the simplest way to structure a business as it requires less paperwork and reporting. Additionally, setting up a DBA is typically faster and cheaper than creating an LLC. For those who are just starting out and need get their business up-and-running quickly, a DBA may be the best option.
5. Taxation: Taxes can be one of the most complicated aspects of running a business. An LLC offers owners the opportunity to choose how the business is taxed: either as a pass-through entity or as a C-corporation. A DBA, on the other hand, is generally taxed as a pass-through entity, as profits and losses are passed through to the owner.
Choosing between an LLC and DBA can seem like a daunting task, especially for those who are unfamiliar with Chicago’s legal system. The best way to make an informed decision is to seek legal counsel from experienced business lawyers who understand the local regulations. UpCounsel is an online platform that connects businesses with experienced and trustworthy lawyers, allowing businesses to find the right counsel on demand. With UpCounsel, businesses can easily and quickly find a lawyer who can provide professional advice related to choosing an LLC or DBA in Chicago.
Deciding between an LLC and a DBA can be difficult decision. It’s important to consider the legal implications, financial benefits, and ongoing costs. Additionally, it’s important to speak with a legal professional as they can provide an in-depth understanding of the pros and cons of each option. Considering all of the factors listed above can help make the decision between an LLC and a DBA an easier one.