LLC vs. DBA: Overview
There are two different ways for entrepreneurs to create their brand for their business: LLCs and DBAs. While a DBA provides a more straightforward method of conducting business under a selected business name without establishing a distinct legal organization, an LLC provides strong liability protection, protecting personal assets from business obligations.
Maintaining an LLC gives you a greater sense of legality and credibility, but it also comes with extra formalities, such submitting articles of incorporation and continuing compliance obligations. However, a DBA is a more appealing choice for sole owners or small firms looking to create a different brand identity without the hassles of an LLC since it is easier to set up and requires less paperwork than an LLC.
What’s an LLC?
The term “limited liability company,” or LLC, refers to a particular kind of business structure that combines the limited liability protection of corporations with the tax advantages of partnerships and sole proprietorships. Since an LLC is a different legal entity from its members than a sole proprietorship or partnership, it protects the owner’s personal assets from creditors.
Small business owners and startups often choose this hybrid structure because it combines the benefits of a large company with the absence of necessary corporate formalities.
What’s a DBA?
The abbreviation for “doing business as” is DBA. A DBA name might be called a trade name, an assumed name, or even a made-up company name. It is a distinct name from your company’s legal name (i.e., the one on your articles of formation), not a separate kind of corporate entity or structure. So, rather than using their legal business name, your LLC may utilize a memorable DBA that is simpler to promote.
Key Differences Between LLC and DBA
Now that you know what these acronyms mean, let’s explore how having a DBA can affect your LLC’s operation.
Taxes
The tax flexibility of your LLC won’t be impacted by registering a DBA. Pass-through taxes, in which the tax responsibility passes through the entity and falls on the LLC members, is nevertheless advantageous to your firm. Put another way, the members will deduct the LLC’s revenues from their own taxes and pay income tax on an individual basis, rather than the LLC paying taxes on its own behalf.
This prevents the double taxation that certain firms experience (i.e., when shareholders pay income taxes on dividends from the business, which pays corporate taxes).
Liability Protection
You will have the same protection against personal responsibility whether you operate under the name of your LLC or a false one. This is so because a DBA is only a different name for your company; it doesn’t affect the kind of business organization that your firm is organized as.
Remember that a DBA does not offer personal liability protection on its own. An entrepreneur may choose to register a DBA name for their single proprietorship, for instance, but doing so will not reduce their obligation. The only entities immune from personal responsibility are corporations and LLCs.
Trademark Protection
Filing formation documents with your state prevents other local businesses from using your LLC’s name for their own business but this won’t give you exclusive rights to use your name. If you want to have the exclusive rights to your DBA or LLC name, you’ll have to get federal trademark protection from the United States Patent and Trademark Office.
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Key Similarities Between LLC and DBA
Business Identity
Businesses can operate under a name different than their legal name with the help of LLCs and DBAs. While an LLC is permitted to use a trade name that is different from its official legal name, a DBA permits a partnership or single proprietorship to use a selected business name that may be more descriptive or marketable.
Flexibility and Setup
Both LLCs and DBAs offer relatively straightforward setup processes compared to other business structures. Forming an LLC involves filing articles of organization with the state and adhering to specific requirements, while registering a DBA usually involves a simpler process of filing a fictitious name statement or trade name registration. This streamlined setup makes them appealing options for entrepreneurs looking to establish a distinct business identity without the complexities of some other business structures.
The Cost of an LLC vs a DBA
Both DBAs and LLCs can offer cost-effective ways to form a full-fledged corporation, making them appealing choices for small businesses and sole proprietors. However, the differences emerge when considering the long-term implications. Establishing a DBA is generally less expensive upfront, involving minimal registration fees for the fictitious business name.
Forming an LLC typically involves higher initial costs due to state filing fees and potential legal expenses. While DBAs don’t provide personal liability protection like LLCs do, their lower costs can be attractive for those seeking a simple way to operate under an assumed name. Ultimately, the choice depends on factors such as the desired level of legal protection, business objectives, and financial resources.
How Can a DBA Help My LLC?
A DBA works as a catchy moniker for LLCs to market their business rather than using their official LLC name. Official LLC names must adhere to naming requirements such as having an indicator (e.g., ‘LLC’ or ‘Ltd. Co.’), while DBA names do not.
Maybe you want to register a DBA to make it easier for customers to remember your brand and look cleaner on billboards. For example, if you have a law firm named “XYZ Law Firm, LLC,” you may want to register a DBA like “XYZ Law.”
You can also use a DBA to separate one part of your business from another. For example, a real estate LLC named “XYZ Real Estate Group, LLC” wants to open a McDonald’s franchise location. It can register the DBA “XYZ McDonald’s” to operate and market the McDonald’s franchise.
Registering and Operating Under a DBA
Filing for a DBA filing is relatively simple. All you’ll need to do is submit the appropriate DBA registration form to the state. The registration fee will vary based on the type of business you have and which state you’re operating in. Some states require companies to publish their DBA in a newspaper, or register a DBA name with the city or county. Either way, you should check with your state’s specific laws to make sure you’re meeting all requirements.
The Bottom Line: Should I get a DBA for my LLC?
Here, there isn’t a decision to be made. It is possible to have both an LLC and a DBA name simultaneously. You will never need to get a DBA, even though creating an LLC requires you to have an official name. It’s only a choice to promote your company under a more memorable name.
Frequently Asked Questions
How does a DBA work with an LLC?
A DBA works as a nickname for your LLC. It won’t change your business structure or your tax status in any way. All it does is inform the state that your business goes by some name other than the one on your articles of organization.
What’s the price difference between registering a DBA and an LLC?
Typically, keeping your DBA active won’t cost a yearly fee, unlike LLCs which usually need to pay annual reporting fees. The overwhelming majority of states only require a one-time registration fee for your DBA.
The exact price difference between a DBA and an LLC will depend on the circumstances of your business, however it’ll almost always be cheaper to register a DBA one time than it is to maintain an LLC.
Do I need a DBA for my LLC?
No — you don’t need a DBA, but it could be a good idea. Say the LLC name you had in mind was already taken by another company. Now you’re stuck with a generic name that isn’t marketing friendly. You can use a DBA instead of that generic LLC name.
How do you file a DBA?
To file a DBA with the state, the first thing you’ll do is find the appropriate DBA registration form. This can usually be found on your Secretary of State’s website. Once you fill out the form, you’ll submit it to the office of whichever government agency is responsible for business filings (usually the Secretary of State) with the appropriate filing fee. The fee will vary depending on the state in which you’re registering the DBA. Some states may have other requirements, so be sure to check your local laws.
How do you set up an LLC?
The steps you will have to go through when forming an LLC include:
- Choosing a unique business name
- Appointing a registered agent
- Obtaining an Employer Identification Number (EIN) from the IRS
- Crafting an operating agreement
- Filing formation documents with the Secretary of State
- Paying the required filing fees and state fees
Keep in mind that each state has slightly different requirements for LLC formation. Over 2/3 of companies in the United States have a Delaware LLC due to the tax benefits offered. Learn more about your state and other states’ offerings for LLC formation to make the best decision.
