Are you confused about whether to register a DBA or form an LLC for your new business? If so, this post is for you.
Both these business structures are wildly popular in the United States. In fact, there were over 21.6 million Limited Liability Companies (LLCs) in the country, according to the most recent numbers from the IRS.
As for DBAs, the number could be even bigger as every organization or person could get them.
Since both a DBA and an LLC allow you to conduct business under a name that’s different from your official business name, it’s important to understand how they differ. Only then should you choose which one to form and engage an agency like Incfile or Inc Authority.
For context, there are important differences between a DBA and an LLC in terms of legal status, limited liability protection, business taxes, and more.
So, how are a DBA and an LLC different?
To help you understand the differences between the two, we’ve put together this in-depth guide on DBA vs. LLC.
Let’s get started.
DBA stands for Doing Business As. It’s also called a “Fictitious Business Name” or trade name, which allows a business to operate under a name that’s different from its legal name.
For example, someone named John Smith could file a DBA to do a dog walking business as “John’s Dog Walking” rather than his personal name. However, the DBA doesn’t create a separate business entity or provide limited liability protection.
DBAs are typically used by established businesses that want to create an offshoot company with a different brand name or rebrand themselves.
Creating a new business from scratch wouldn’t make sense in this case, making a DBA filing favorable. Many Sole Proprietorship firms also use DBAs to assume a different brand name, as they otherwise have to conduct business under the owner’s personal name. To manage the financial facets of your business effectively, consider learning about small business bookkeeping for beginners.
LLC is short for Limited Liability Company, and it’s a legally separate legal entity that is registered with the state. It’s a separate legal entity from its owners, so everything that it owns or owes is attributed to the business and not its owners, who are called members.
This clear distinction between the LLC members and the LLC is the reason why an LLC offers limited liability protection to its members. Their personal assets can’t be used to pay the business’s debts as their personal and business affairs are separate. You can start an LLC by using the services of a company like Incfile.
Now that you know what a DBA and an LLC are and their pros and cons, let’s get down to the real deal—how these two stack up. Let’s look at some crucial distinctions in the DBA vs. LLC debate.
When you launch a business, you’ll want to shield your personal assets from any potential legal and financial ramifications. That’s where personal liability protection comes into play.
If you choose a business structure like an LLC that provides legal protection, your personal assets can’t be used to pay off the company’s debts. This allows you to conduct business without worrying about how it could impact your personal finances. To ensure you have everything covered, make use of this LLC formation checklist.
A DBA filing, by itself, doesn’t offer any personal liability protection for your business. That’s because it’s not a separate legal entity at all. It’s just a fictitious name for your existing business.
Instead, what matters here is your business entity. If you’re a sole proprietor, you won’t have any personal liability protection. However, if you register a DBA after starting an LLC or Corporation, you’ll get the advantage of business liability protection.
As the name suggests, personal liability protection is a core feature of the Limited Liability Company. When you start an LLC in any state in the United States, you won’t be personally liable for the business’s debts. Your personal assets are protected, whether you have single-member or multi-member LLCs.
However, to maintain this legal protection, it’s crucial to keep your personal and business finances separate. For help choosing the right service to aid you with this, compare Inc Authority vs. ZenBusiness.
That’s why it’s crucial to open a business bank account and conduct your business transactions solely through that. Commingling funds could jeopardize your LLC’s personal liability protection.
Taxation is another important consideration in the DBA vs. LLC decision. When you start a business, you’ll have to pay tax on its profits. But how your business is taxed completely depends on your business structure. That’s why it’s important to take tax considerations into account before choosing an entity for your business.
When you file for a DBA, your taxation doesn’t change in any way. That’s because the way your business is taxed depends on the business entity, and DBA isn’t one.
So, if you’re a sole proprietor using a DBA, your business profits will “pass-through” to your personal income tax returns. The same would also be true for single-member LLCs. However, if you’ve started a corporation, your income will be taxed twice—first at the corporate level (corporate tax) and then at the personal level (dividends).
The default tax treatment for LLCs is “pass-through” taxation. The business profits pass through to the LLC owners and are reported on their personal tax returns. This avoids the double taxation that corporations face.
However, LLCs have some tax flexibility. LLC members can elect to have the business taxed as an S Corporation or C Corporation instead.
With S Corp status, the LLC members are only taxed on their reasonable salaries and any distributions, not on all the business profits. This can provide substantial tax savings for profitable LLCs. However, it does require more complex tax filings and paperwork.
Choosing the optimal tax treatment for your LLC can be tricky. It’s best to consult with a tax professional to determine the most advantageous approach for your situation. For assistance with forming your LLC, consider utilizing one of the best LLC services.
The filing process is quite different when comparing DBA vs. LLC. For starters, the process of launching your business depends on the legal business structure you choose.
While starting a Sole Proprietorship is the easiest, corporations are the toughest to form. LLCs, on the other hand, lie somewhere between. To ensure you cover all required steps, use this LLC formation checklist.
So, how do DBA vs. LLC stack up when it comes to the ease of business filing? Let’s take a look.
It’s easy to file for a Doing Business As compared to an LLC, solely due to the fact that it’s not a legal business entity. DBA is a fictitious name for your business so the process to get it is fairly straightforward.
Here’s the process for registering your DBA.
You could also engage the services of a business formation agency like Incfile or Inc Authority to file for your DBA with ease.
While filing for an LLC is easy, the process is longer than the one you need to go through to file for a DBA. One of the main reasons for this is the fact that an LLC is a legal entity, and DBA isn’t.
Here’s the process to get your LLC up and running.
To simplify this process, you could opt to engage the services of a business formation company like Inc Authority or Incfile.
Another major factor that differentiates an LLC from a DBA is the business ownership structure. Let’s see how these two stack up when it comes to the ownership of the business.
A DBA isn’t a legal entity, so it doesn’t affect the underlying business structure in any way. Business ownership solely depends on the business structure you’ve chosen to start your business.
If you’ve opted to become a Sole Proprietor, you’ll be the sole business owner of the DBA. The same would also apply to a single-member LLC.
On the contrary, if you’ve started a multi-member LLC or a Corporation, you’ll have multiple business owners with equal or varying stakes in the business based on the understanding gained while starting the business or share distribution.
In a nutshell, when you get a DBA, the business ownership structure remains intact.
An LLC is a legal business entity, so your business ownership completely depends on it. If it’s a single-member LLC, you’ll be the whole and sole owner of the business, much like a Sole Proprietorship firm.
However, if you’ve got other members who’ll run the business with you, the ownership of the business will depend on the stakes of the members in the business. Alternatively, you can define business ownership in the Articles of Organization. For assistance with this process, consider reading a review of Inc Authority.
Similarly, the LLC Operating Agreement outlines who will run the business. Will it be a member-managed LLC or a manager-run LLC? The Operating Agreement determines that.
While the business structure you choose gives you various advantages in the form of tax benefits, liability protection, and more, it also determines the compliances that you’ll have to follow.
Let’s see how a DBA and LLC compare with each other in terms of compliance needs.
By itself, running a DBA doesn’t bring in any compliances apart from renewals. Some states require you to renew your DBA regularly—between one and ten years, depending on the state. This is the only compliance requirement for your DBA.
However, there may be other complications that you’d have to fulfill based on the business entity you’ve chosen the DBA for. While a Sole Proprietorship has minimal compliance requirements, they are pretty stringent if you’ve decided to form a Corporation. From annual reports to annual general meetings, there’s a lot that you need to do to remain compliant with state and federal regulations.
A service like Incfile or Inc Authority could help you remain compliant and in the good books of the state by providing routine reminders.
As an LLC owner, you have more compliance requirements as compared to a DBA. After completing your business filings, you may be required to pay an annual fee to your state to keep your LLC running. This fee varies from state to state. To make sure you meet all compliance requirements, use this LLC formation checklist.
Some of the other compliance requirements that you may have as an LLC include:
Once you’ve got a business name, you’d ideally want to keep it as unique as possible to ensure that nobody confuses your business with others. A unique business name also ensures that you can turn it into a brand.
That’s why it’s crucial to consider the business name protection features that come with business structures. Here’s how a DBA and a LLC are different in terms of business names:
When you register a DBA, you may not get exclusive rights to that fictitious business name. Depending on the state in which you start your business, you may or may not get any business name protection. Some states don’t prevent other businesses from adopting the same name as an existing DBA.
That said, the situation may be different for the legal name of the business based on the underlying business structure. For instance, if you’ve started a corporation, the corporation’s legal name will remain protected.
LLCs offer greater protection for your business name. When you register your LLC business name, the state usually won’t allow any other business to adopt a similar name. It may not even permit other businesses to file a DBA that’s similar to your business name.
That said, the protection isn’t complete. If there’s another business that wants to use the same or similar name, it can do so. However, the industry in which the business operates should be drastically different from your industry. This helps the state (and customers) establish a clear distinction between the two businesses.
To make sure your LLC name is protected and unique, consider using one of the best LLC services.
A trademark registration gives you the sole right to your business name. It’s a great way to protect your brand and ensure that no one else can infringe upon it. You could apply for a trademark at both the state and federal levels to give your business name state or nationwide protection.
One of the greatest drawbacks of a DBA is that it doesn’t offer any trademark protection. So, anyone can choose to use the same name as yours if the state permits them to start using it.
In essence, a fictitious name isn’t the best option if you want to secure the business name. Instead, it’s a good way to get a new name for your business without spending a lot of money.
When you start an LLC, you do have the advantage of opting for trademark protection for your business’s legal name. You could file for a state or national trademark to prevent other businesses from using your name or names similar to yours. To make sure you cover all the necessary steps, use this LLC formation checklist.
As mentioned above, a Registered Agent is a person or organization that chooses to receive legal communication on your company’s behalf. You could also be your own Registered Agent, but you’d have to be present at the Registered Address on all working days during working hours.
That said, not all business entities require a Registered Agent. Additionally, the rules regarding Registered Agents differ from state to state too.
Let’s see how they apply to DBAs and LLCs.
When you file for a DBA in the United States, you don’t necessarily need to get a Registered Agent. Instead, the requirement is completely based on the business structure you’ve chosen in the first place.
If it’s a Sole Proprietorship, you don’t need to have a Registered Agent for it. However, if you’ve chosen an LLC or a Corporation for your DBA, you’ll likely have to get a Registered Agent.
In such a case, you can choose to have a Registered Agent service like ZenBusiness or LegalZoom do it all for you.
If you’ve started an LLC, you’ll likely need a Registered Agent for it. Many states have made it mandatory for LLCs to have a Registered Agent when they start their operations in the state.
So, even if your LLC is based in one state, it may need to get a Registered Agent in another state if you expand it there. In a nutshell, you would need a Registered Agent in each state where you operate if the state requires you to have one.
While you can be your own agent, it wouldn’t be feasible for you to be in every state all the time. That’s where a Registered Agent service like Incfile or ZenBusiness can help you. They have offices all over the country and can act as your Registered Agent and receive communication on your behalf. This helps ensure continued compliance for your business and keeps your business in the good books of the state.
1. Is it better to register a DBA or LLC?
There’s no right answer to this. LLC is a legal entity, while a DBA is just an alternate name for your business. If you solely want a new business name under which you can run your operations, a DBA is the right and inexpensive way to do it. But if you’re looking to start a business from scratch and want benefits like liability protection, an LLC is the way to go.
2. What are the disadvantages of a DBA?
Some of the main disadvantages of a DBA include:
3. What are the pros and cons of DBA vs LLC?
Here are some of the advantages and disadvantages of DBA vs. LLC:
4. How does a DBA affect taxes?
A DBA doesn’t affect your business taxation in any way. It’s just an assumed name for your business. The taxation will depend on your business entity—whether it’s a Sole Proprietorship, LLC, or a Corporation. You’ll have pass-through taxation for the first two cases but double taxation if you have a Corporation.
5. Is a DBA the same as a subsidiary?
No, a subsidiary is a separate company that operates under an umbrella organization. It’s either partially owned or fully owned by the parent company. However, a DBA is only a separate name for the same company; it’s not a different company.
6. How much does it cost to register a DBA vs. forming an LLC?
The costs of forming an LLC vs. registering a DBA vary by state. But in general, setting up an LLC is more expensive.
To register a DBA, you’ll typically pay a small filing fee to your state or county, usually around $5–$150. Some states also require you to publish a notice in a local newspaper for a certain period, which can add to the cost.
LLC filing fees, on the other hand, are higher, often $35–$500, depending on the state. You’ll also have recurring costs each year, such as annual report fees, registered agent fees, and minimum franchise taxes. These ongoing LLC fees are usually a few hundred dollars per year, although they vary widely by state.
7. Can I use a DBA for multiple businesses?
In most cases, a DBA can only be associated with one business entity. So if you’re a sole proprietor or you have an LLC, you can typically only use that DBA for that specific business.
However, you can register multiple DBAs for a single business. For example, if you have an LLC called “ABC Enterprises LLC,” you could register the DBAs “Ann’s Catering” and “Bob’s Bakery” to operate different divisions of your business under those trade names.
Ultimately, the choice of a DBA vs. LLC boils down to what you need. If you’re in need of a separate name for your business and don’t want to establish a subsidiary or another business, a DBA is a great way to go about it. You can easily get an assumed name for your business without spending much.
But if you’re looking to start a business from scratch and want to reap benefits like liability protection and pass-through taxation, an LLC is the right choice for you. It’s always possible to get a DBA for your LLC at a later stage if you want another name for it.
So, determine your requirements and make your decision wisely. For help in choosing the best services for forming your LLC, consider exploring the best LLC services. All the best!
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