Reviewing the pros and cons of LLC vs. DBA is essential for deciding on the type of business you want to start. Although these three-letter acronyms are often mentioned together, they are very different and affect how you operate your business.
We’ll explore what these terms mean and explain the differences between LLC vs. DBA to help you understand exactly what each of these is.
LLC vs. DBA: The Basics
These two acronyms usually confuse entrepreneurs. Before we explore the differences between LLC vs. DBA, let’s first take a look at their definitions and a few basic examples.
What’s a DBA?
DBA stands for “Doing Business As.” This is a fictitious or assumed trade name that allows you to do business under a different name other than your legal business name.
For example, if you have registered a sole proprietorship or a partnership, you’re supposed to use the official names of the owner(s) when operating the business.
However, you can register a DBA with the state licensing agency to operate the business under a different name.
Let’s say Susan Jones is a young foodie who wants to start a food catering business in her home state. Since her sole proprietorship is registered under her legal name, she can register a DBA by the name Susan’s Kitchen to conduct business in the state.
A DBA has many advantages, such as:
- It makes it easy to market your business
- It’s easier for customers to remember
- You can use it to build a website
- It allows you to provide different products and services
Since DBA is just a fictitious name for a business, it doesn’t provide the legal protection you’d get from business structures like an LLC.
What’s an LLC?
LLC stands for Limited Liability Company. This is a legal business structure that is distinct and separate from its owners. An LLC is formed when the owners work with a qualified registered agent to file the relevant paperwork with the state.
An LLC is treated as a separate legal entity and can enter into agreements and own property as a business. By keeping the business affairs separate from the owners, an LLC protects the owners’ assets from business debts.
Liability protection is one of the key differences between LLC vs. DBA. It’s also one of the main reasons entrepreneurs choose to operate their businesses as LLCs.
In the event the business gets into debt, creditors can only go after the company’s assets – and not the owner(s) personal assets.
Other than liability protection, the other benefits of an LLC include:
- Simple Taxation – LLCs don’t pay taxes by themselves. Instead, their taxes “pass-through” to the owners’ tax returns.
- Enhanced Credibility – Given a formal business structure, an LLC is considered a credible legal entity, which makes it easier to secure business financing.
- Tax Flexibility – LLCs can choose whether they want to be taxed as a sole proprietorship, a c-corporation, or an s-corporation.
An LLC can also register a DBA and use it as a trade name. For example, Amana Fast Foods LLC can register the DBA “Crunchy Bites” to test a new marketing strategy for its fried chicken dishes.
To simply the LLC formation process, you can use a free service like Inc Authority that offers free business formation service and expedites the processing time as well.
LLC vs. DBA: The Differences
Now that you know what these two acronyms stand for, here’s a closer look at the differences between LLC vs. DBA.
Personal Liability Protection
This is the main difference between LLC vs. DBA. An LLC offers protection to the business owner and the personal assets that they own. The owner is not liable for the actions of the LLC because it is a distinct legal entity from the business owner.
On the other hand, a DBA is nothing but a fictitious name a business uses for day-to-day operations. It doesn’t give the business owner any extra liability protection and is just meant to simplify the business’s name so customers can easily remember it.
You should also consider the associated fees when choosing between LLC vs. DBA. While the business owner has to pay a fee for both, filing for a DBA is cheaper than starting an LLC in the same state.
You only have to pay a one-time fee when you register a DBA, but an LLC requires you to make regular tax payments until it’s disbanded.
Exclusive Rights to the Business Name
When you register a DBA, you don’t get exclusive rights to the name. An LLC, on the other hand, gives you more protection since another entity in the same state cannot use the same name as yours to register their business.
However, to get exclusive rights to a business name, you need to get a federal trademark.
Registering a DBA doesn’t introduce new tax considerations. The taxes you pay remain the same.
However, forming an LLC brings new tax considerations. You will have to make annual filings with your state and the IRS. Some states also require LLCs to pay a franchise tax.
LLC and DBA are common business acronyms you’ll encounter as you work on setting up your business. Now you know the differences between LLC vs. DBA and know the purpose of each.
LLC is one of the many business structures that you can choose while DBA is a fictitious name that you can use to use a name other than your legally-registered name. It’s time to put an end to the LLC vs. DBA dilemma and focus on starting and growing your business. Good luck!
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.