What’s the Difference Between an LLC and a DBA?
today at 9:25 am
Starting your own business is a huge decision, one that you’ve likely put a lot of time, thought and effort into. Now, you must choose exactly what kind of business you wish to run. Should you make it an LLC or a DBA?
Familiarizing yourself with the pros and cons of each will help you compare your options and narrow down your decision so you can make the best possible choice.
What Is an LLC?
A Limited Liability Company is a business structure whereby the owners aren’t personally liable for the company’s debts or liabilities. In other words, the business operates as a separate legal entity to better protect your assets. If fraud or loss does occur, all members of your LLC will share accountability. Thus, an LLC combines the attributes of a corporation with those of a partnership or sole proprietorship.
In most states, it’s relatively easy to set up an LLC. Simply complete the filing process online and visit the Internal Revenue Service’s (IRS) website to apply for an Employer Identification Number. Then, decide whether you want the government to tax you as a sole proprietorship, partnership, S-corporation or corporation.
Depending on which one you choose, you can save money when you go to file your taxes. However, if your state charges LLC taxes, you may possibly pay more, as they often charge a flat fee. If you’re a sole proprietor and would rather avoid these fees and extensive legal procedures, a DBA may be a better option.
What Is a DBA?
DBA means Doing Business As. This type of business structure allows your company to operate under a different name than your personal name. With a DBA, you can also change the name with minimal formalities. Plus, you can open a business bank account to separate your personal assets from your company finances.
Registering for a DBA is less expensive than filing for an LLC. With a DBA, you only have two fees — one for registering and another to cover renewal every five years or so. Moreover, you won’t have to abide by any bylaws, agreements or other formalities.
However, since there is no binding limited liability clause, your business and assets won’t receive protection. You also won’t be able to qualify for special income tax status, meaning you’ll pay taxes based on your personal filing status. Consequently, you may pay more taxes than an LLC.
Which Is Right for You?
While an LLC makes sense for some businesses, a DBA may work better for others. Thus, there is no hard and fast rule on which you should choose. Rather, you must reflect upon the direction in which you’d like to steer your business to determine the best option for you. Do you want to protect your organization and avoid a lawsuit? Choose an LLC. Are you juggling multiple projects and want to minimize expenses and paperwork? A DBA may be best.
Consult a small business attorney, an accounting professional and others within your industry if you’re still unsure which route to take. Your final decision will impact your current and future growth in major ways, so consider each option carefully. Then, pick the best one, commit to it and get that show on the road.