LLC VS DBA Starting A New Business

LLC VS DBA | Starting A New Business

LLC VS DBA | Starting A New Business

Let’s face it, starting a business can be downright challenging! When doing the work to set the course towards starting a new business, there are many details to consider. The biggest hurdle can be how to classify your business overall. There are many factors to consider when making this decision.

LLC VS DBA

The new business owner has a lot on their hands in many capacities. When starting a business, you need smart preparation and a good understanding of the risks involved. Thorough preparation is key!

To help you prepare, it is important that you learn the differences between a DBA and an LLC and the pros and cons for each. Though DBAs and LLCs have similarities, there are notable differences between them.

There is a great deal of confusion regarding the differences in the DBA vs. LLC option. If you own a corporation or an LLC, you must file a DBA before you can do business under a name different from the name you listed on your formation paperwork.

Both LLCs and DBAs allow business owners to name their business something other than their own individual legal name. Are you following? So, let’s remember first and foremost that the biggest difference between a DBA and an LLC is liability protection.

DBA under an LLC

LLC VS DBA

When you want to expand your business, you might register a DBA for your LLC. If you’re going to use a name other than the name you listed on your LLC formation paperwork, you must register a DBA.

An example would be, if you own a hair care company LLC called “Sister Curls, LLC,” and want to start a daycare within the same LLC and under the name “Loving Children” you would have to register a DBA. Because DBAs do not offer liability protection, the assets of your hair care business will be on the line if anyone sues your daycare. 

In order to protect the assets of the hair care business from debts of the daycare (and vice versa), you could register a new LLC for the daycare. Forming a separate LLC means additional filings and fees, but it would allow you to keep the assets of each business protected from debts and liabilities of the other business.

A limited liability company, or LLC, means that a business is operating as a distinct and separate legal entity from its owners. An LLC must be managed by members or a manager. Members are the owners of the company, while a manager may or may not be a member.

 

LLC - Tax Benefits

If you do not file your LLC as an S Corporation, Partnership or C Corporation, you are not going to gain any Tax benefits just for having an LLC. It’s going to be taxed just like a Sole Proprietorship. 

An LLC structure also includes more tax flexibility, as an LLC can choose to be taxed as an S Corporation, Partnership, or C Corporation.

To form an LLC, business owners must file articles of organization at the state level and adopt a Member(s) Operating Agreement.

LLC - Protection

If you are fully separating yourself from your business ” not commingling your funds”, when it comes to LLC, if your company goes bankrupt or someone sues your business, you’re not held financially responsible for your company’s debts or liabilities. An LLC offers liability protection, which means that if someone sues your business, your personal assets will not be on the line to satisfy the debt. An LLC owns property and enters into agreements as the business, which keeps the business affairs separate from the owners’ personal affairs.

LLC - Benefits Summed Up

The benefits and responsibilities that come with forming an LLC are :

  • Limiting your liability for the debts of the business
  • Trademark protection for your business name
  • Paperwork and filing fees for registration and maintenance, and
  • Tax filings and options for tax treatment.

DBA - Definition

What’s the Definition of a DBA? A DBA is simply an acronym for “doing business as.” It is also referred to as a trade name, fictitious business name, or assumed business name.
A DBA allows a business to operate under a name that is different from its legal name.

Other functions of note are that DBA’s are filed on the county level where the business is located. A DBA also allows the business owner to open a business bank account and receive payments in the name of the business.

In some cities it is required that you publish a notice of intent in your local newspaper in order to use your DBA name, and costs are associated with that. Some states allow you to use your DBA for as long as you like without having to re-register, while others require you to refile every year.

After you register a DBA, the public can look up the business name in a government database and find out that you are the owner of the business.DBAs have some downsides. The downsides are that : It is neither a business structure nor a legal entity. It’s simply a name that brands your business, not your legal name. It also does not necessarily give you exclusive rights to the DBA name. 

DBA - Protection

Depending on your state’s rules, someone else could file the exact same name and be approved for use. If a DBA falls under a Sole Proprietorship, it does not protect your personal assets, so in the event of a lawsuit against your business, your personal bank accounts, car, or home could be at risk.

If a DBA falls under an LLC, “Even though formal business entities do have personal asset protection, separating segments of the company with DBAs actually does not shield each segment from the others when it comes to liability.  if you obtain six DBAs to separate six segments of your business, a lawsuit against one segment is still a lawsuit against the entire company, including all five other segments.” – LLC Formation Rocket

DBA & LLC - Filing Fee

When it comes to filing fees they do vary from state to state. LLC: You’ll need to pay an initial LLC filing fee and an LLC annual/biannual fee. DBA filing can cost $40 to file for just one DBA name and one owner, with an additional fee for each additional owner or DBA name listed on the same filing. 

LLC vs DBA Summary

When business owners have to weigh their options the choice can be difficult to make. One might ask, which of the two is “better”. But, this depends mainly on how protected you feel your business needs to be.

The business owner should keep in mind, the way you set up and run your business can impact your current and future growth. Put a great deal of thought and consideration into this decision if you’d like to meet your business goals,.The right business structure can make all the difference in the world, so carefully consider all of the details and choose wisely.

For a review, here is a brief breakdown of the definitions of the two structures:
LLC:

For a review, here is a brief breakdown of the definitions of the two structures: 

LLC - Limited Liability Company

Advantages:

  • Has name exclusivity—once approved, no one else in your state can use your name
  • Simplifies taxes ( S Corp, Partnership, C Corp )
  • Offers more flexibility in how you file your taxes
  • Is a bona fide business structure
  • Offers limited liability protection to help protect your personal assets from lawsuits and liens against your business.

Disadvantages: 

  • Entails ongoing paperwork
  • Must adhere to state laws governing LLCs
  • Is more formal 
  • Requires more out-of-pocket expenses to establish and maintain

DBA "Doing Business As" - Must be filed under a Sole Proprietorship or LLC

Advantages : 

  • Affords privacy
  • Is simple and less costly 
  • Simplifies taxes
  • Involves less paperwork 
  • Less bureaucracy than an LLC

Disadvantages : 

  • No tax savings
  • No name exclusivity
  • Offers no liability protection—you are financially responsible for debts and liens against your business
  • Not a business structure
Share on facebook
Share on pinterest
Share on linkedin
Share on reddit
Share on email