What to Consider When Comparing DBA vs LLC in Dallas
Setting up a business is a complex and often challenging endeavor3 min read
Setting up a business is a complex and often challenging endeavor. Naturally, you want to do everything you can to ensure that it gets off to the right start. When you are preparing to launch a business, one of the key decisions you will have to make is which type of business entity you are going to use. The two most common choices are a DBA (Doing Business As) or an LLC (Limited Liability Company). Below, we’ll outline the top five things you should consider when comparing DBA vs LLC in Dallas.
1. How the Structure of Each Entity Affects Your Business
When setting up a business, the structure you choose is of paramount importance. One of the key differences between a DBA and an LLC is the way the business structure itself affects the way your business is operated. A DBA is not a separate legal entity from the person or business who owns it; whatever the owner does, they can do as a DBA. A DBA is basically a trade name or "assumed name." This means that the person setting up the DBA is personally responsible for any business dealings conducted through the DBA, including debts, lawsuits, and other obligations. An LLC, on the other hand, is a separate legal entity from the owners, meaning that the owners are typically not personally responsible for the debts and obligations of the company.
2. Tax Implications of Each Entity
Another key difference between a DBA and an LLC is the way each one is taxed. With a DBA, the owner is responsible for paying personal income taxes on any profits earned through the DBA, as well as any applicable local or state taxes. An LLC, however, is typically considered a "pass-through" entity, meaning that profits are not taxed at the corporate level. Instead, any profits are passed through to the owners, who would then be responsible for reporting their share of the profits on their personal income tax return.
3. Liability Protection with Each Entity
When deciding between a DBA and an LLC, it is important to consider the level of liability protection provided by each. A DBA offers no protection from liability. The owner is personally responsible for any debts, lawsuits, or obligations that arise as a result of the DBA. An LLC, however, does provide some liability protection, depending on the laws in the state in which it is incorporated. Generally speaking, an LLC can shield its owners from personal liability for any debts or legal judgments against the company.
4. Ongoing Compliance Requirements for Each Entity
When comparing DBAs versus LLCs, it is important to consider the ongoing compliance requirements for each one. A DBA does not have any ongoing compliance requirements, other than making sure that the trade name or "Doing Business As" designation is kept up to date. An LLC, on the other hand, must adhere to a variety of ongoing compliance requirements, depending on the state in which it is incorporated. The requirements can range from filing an annual report to filing a document when the ownership changes.
5. Professional Assistance When Setting Up a Business Entity
Finally, it is important to consider the professional assistance you might need when setting up a business entity. A DBA can typically be set up without the help of an attorney. However, a DBA does not provide the same level of legal protection and liability protection as an LLC. An LLC typically requires the assistance of a lawyer or another qualified professional to ensure that the company is set up correctly and in compliance with the applicable laws. If you are setting up an LLC in Texas (which includes Dallas), you should consider working with an experienced attorney who specializes in business law and is familiar with the local regulations.
When deciding between a DBA and an LLC, there are many factors to consider, from the structure of each entity to the tax implications to the level of professional assistance needed. Hopefully, this article has provided some insight into the key differences and helped you narrow down your decision. If you're looking for legal counsel that understands the local regulation in Dallas, consider working with one of UpCounsel's experienced attorneys.
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