Are you thinking about starting your own business? If so, you may find yourself in the DBA vs LLC conundrum. One of the first important decisions is choosing a business structure, and a DBA and an LLC are two of the most common choices. But how can you make an educated decision between the two?
Both of these formal business structures come with advantages and disadvantages. By learning the differences between a DBA and LLC, you can pick the best option for your business operations. You may even find that you need both these business types to operate optimally!
Read on to get a breakdown of the DBA vs LLC debate, with explanations of both types of legal business structure. This information should provide clarity on these topics and help you decide which business management structure best suits your burgeoning business.
DBA vs LLC: Definitions
Your choice of business structure will likely come down to the filing costs and the limited liability protection you need. This is one place where a DBA and an LLC diverge. To explain this fully, we’ll first need to define each term separately.
What Is a DBA?
DBA is an acronym that simply stands for “doing business as.” You can use this term as a fictitious, generated, or assumed name for any type of business entity, including a sole proprietorship or an LLC.
A DBA allows a business or an individual to function under a new identity contrasted from a legal formation. It works as a sort of alias for your fictitious business if you don’t want to use your own legal or business identification. For example, if you want to operate your clothing business under the name Amazing Beautiful Clothes, then you’d do a DBA filing so you can legally use that name. In most states, a DBA filing for your business entity takes place at the county level.
What Is an LLC?
LLC is an acronym that simply means “limited liability company.” This means that a business operates as a distinct and separate entity (separate business) from its owners. To start an LLC or Corporation, you need to file formation documents on a state level and comply with a member(s) operating agreement.
People generally like LLCs for their relative simplicity and the personal liability protection they offer. An LLC’s structure deals with a lot more formalities, but it also has significantly fewer restrictions. It can be managed either by a single manager or multiple members (or a business partner). The members act as the owners of the business. Keep in mind that the manager doesn’t need to own some shares in the business assets.
How DBAs and LLCs Work
Simply put, a DBA and an LLC aren’t really comparable legal structures. An LLC is a business structure that provides some tax and legal protection to its sole proprietor or members. A DBA is simply permission to legally use a name. You can easily have an LLC that has several DBAs connected with it. For example, your lifestyle brand LLC, Amazing Beautiful Creations, could have DBAs for Amazing Beautiful Clothes, Amazing Beautiful Cutlery, and a slew of other brands.
Knowing this, let’s take a deeper look at the benefits of DBAs and LLCs in this section.
Benefits of an LLC
An LLC presents a great option for someone starting an entirely new business venture. LLCs, as a business structure, has several advantages.
Easy to Set Up and Maintain
Setting up and maintaining an LLC is a lot easier than creating and maintaining a corporation. You generally need to file this structure with the Secretary of State and file articles of the organization before paying a fee. This is a big advantage over corporations, which need to submit yearly reports and pay annual fees to stay operational.
As implied by the name “limited liability corporation,” an LLC provides a barrier of personal liability protection for its owners. An LLC is a separate legal entity from an individual owner. As such, the owners have limited personal liability and no risk to their personal assets. Unhappy customers of the LLC could sue the business, for example, but they can’t sue the individual owners. Only the business profits and assets are at stake.
An LLC has more tax flexibility than many other business structures. A brand-new business with this structure can choose whether to get taxed as various forms of business. This business structure allows selected profits to get taxed only once when each member’s income tax returns (as opposed to some corporation structures, where profits are taxed twice).
An LLC allows a business owner to make their own decisions regarding their business without needing approval from a board of directors like a corporation would. This can help decisions be made faster without as much bureaucratic red tape, resulting in swifter and smoother operations.
LLCs also entitle business owners to trademark security, which gives them exclusive rights over their brand in the state (DBAs do this as well). This means that no one else in your state can use the name “Awesome Beautiful Creations LLC” once you reserve it, either in an online business or physical business.
Benefits of a DBA
A DBA is most advantageous when a business owner does not want to create a separate legal entity for a new venture. DBA structures represent the easiest and cheapest way for a business to operate under a generated name. DBAs also allow businesses to operate with a fictitious business name in the same state. However, it doesn’t become a separate entity from its owner. The business structure has no liability protection or separates taxation connection. The structure only focuses on the marketing strategy. Here’s what you have to gain from a DBA.
Easiest Business Structure
A DBA structure allows sole proprietors to open a separate business bank account and receive income on behalf of their business. The majority of banks will not allow anyone to open an account for their business without a copy of a filed DBA or another business structure. This is the easiest, fastest way to get this done.
A DBA allows you to run several businesses without needing to establish a separate business entity. For instance, if you want to open several stores, restaurants, and services, you can establish a single corporation (like an LLC) with a relatively common name and then file a DBA for each store, restaurant, and service. This allows you to manage your expenses and paperwork effectively while growing your business credibility.
A DBA uses a different name as a sort of marketing tool to gain competitive benefits. It allows customers and the public to remember the company and have a connection to it.
DBA vs LLC: How to Get Started
Your choice of business structure entirely depends on you and your preferences. A standalone DBA is often a temptingly easy option, but an LLC provides the biggest benefits in the form of security for your personal assets and tax breaks. An LLC also makes it easier when growing, selling or providing funding for various lines of business. And you can always use an LLC (either a sole proprietorship or with other members) as a hub for one or more DBAs.
Once you’ve made a decision, here’s how to tackle starting your legal business entity.
Creating a DBA
When it comes to a DBA-structured business, the main requirement is simply registering the new name with your local office. In many states, this can be accomplished entirely online. If you’re in California, check out the California state website on DBA registration for more information.
Creating an LLC
Creating an LLC requires filing additional documents with the Secretary of State. You need to file a type of registration document that has the name and address of the business along with the names of owners and other pertinent information. Again, depending on your state, you may be able to create your LLC entirely online. Many states also have an online portal that allows you to pay renewal fees, change your legal structure, and more online. Here’s the California state website on LLCs for those interested.
Get Help Forming Your DBA or LLC
The question of DBA vs LLC will determine how your business operates as a whole. You need to evaluate each aspect of the structures before making a decision. If you run into trouble determining your legal liability, tax implications, expenses, administration, and future needs, you may wish to seek legal advice. With expert advice, you can have a fresh, experienced set of eyes on your situation. However, expertise can be expensive.
What if you know which business structure you’d like to use and need help setting up your business, but you’d like to avoid the cost of a business attorney? A legal document assistant service is highly recommended. Our legal document experts can prepare all the necessary documents you need to proceed with your business, making the process a lot easier and ensuring compliance with all legal requirements.
If you’re ready to get started setting up your business, consider using A People’s Choice. We have a team of legal document assistants who can assist with your legal needs. With us, you are guaranteed excellent service when forming and maintaining your business. Don’t hesitate; if you want the best service and results, contact A People’s Choice today and make your business dreams a reality!
I have an LLC but want to open a business bank account. Do I need a DBA?
Unfortunately, we cannot tell you what you do or do not need for your specific circumstance. If you need legal advise, you should attempt to speak with an attorney.