LLC vs DBA

The main difference between an LLC and a DBA is that an LLC is a business entity, and a DBA is a registered fictitious business name. Sole proprietors, general partnerships, and LLC can register for a DBA.

Author: Brad Nakase, Attorney

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Sole proprietorship vs LLC vs DBA

Rory has just started her own small business, a tutoring company that caters to middle school and high school students who need help with their coursework. At the moment, the company is a sole proprietorship, meaning it uses Rory’s name as its own. Rory would like to change the name to something more creative, which can help build her brand and attract new clients. That said, she is not sure whether to make her business an LLC or simply file for a DBA name. She knows that filing for an LLC means that she will get limited liability protection, but she is not sure whether it is worth the money. Perhaps a DBA would suit her small business better. Rory begins to do research to see whether an LLC or a DBA is best for her small company.

What Is an LLC?

A limited liability company (LLC) is a type of business that exists as a separate legal entity from its owner. When an entrepreneur starts a limited liability company, the entity must have members or a manager running it. Members count as the owners of the business, and a manager may or may not qualify as a member.

If a business owner decides to create an LLC, then he or she must do business using the legal name that they registered the company under. It will likely be necessary, depending on the state, to conduct a name check prior to choosing a name. This is in order to avoid choosing the same name as another existing limited liability company.

Because a limited liability company is its own legal entity, it will protect a business owner’s assets. This means that with an LLC, a business owner will not be the only individual responsible for any losses the business endures. Rather, all members of the limited liability company will share accountability.

What Is a DBA?

DBA is the acronym for “Doing Business As”, which allows a company to operate using a name different than its legal name.

While a DBA does not form a legal business entity, it allows a business owner to conduct their business using a different name than his or her personal name. Essentially, a DBA is a formal registration of a business name, allowing an entrepreneur to use it while operating their company.

A DBA allows a business owner to legally change their name and company with little paperwork and formality. Because a business owner is not protected by limited liability, his or her business assets will not receive any coverage. This means that an entrepreneur is obligated to repay any losses that he or she endures.

A DBA allows a business owner to open a business bank account and collect money on the company’s behalf. It gets rid of the need to incorporate the company or create a limited liability company. If a business owner starts a DBA, then he or she can proceed as a sole proprietor or as a limited liability company.

What Are the Benefits of an LLC?

The biggest benefits of a limited liability company include the following:

  1. Liability Protection

A limited liability company can reduce a business owner’s liability. For example, if a customer gets sick after eating a restaurant owner’s spaghetti, an LLC can prevent the customer from going after the restaurant owner personally. An LLC also allows a business owner to protect him or herself from vendor disagreements and unpaid business debts.

  1. Easy Set Up

A business owner can submit the paperwork online to create their LLC. In most states, this process only takes a few minutes. Once they do so, the owner will then visit the Internal Revenue Service’s website in order to register for an Employer Identification Number (EIN).

  1. No Member or Partner Restrictions

A business owner is able to create a limited liability company with themselves as the only member, or they may choose as many members as they want to have. They must simply remember that with more members, administration of the business becomes more difficult.

  1. Tax Flexibility

Being a limited liability company gives a business owner the choice of deciding whether they want to be taxed as a sole proprietorship, a partnership, an S corporation, or a corporation.

  1. Continuous Existence

If a business owner creates a limited liability company, the business will continue to exist, regardless of whether the owner sells his or her shares or dies. In this way, an LLC is similar to a corporation.

  1. Investor Participation

The members of a limited liability company can be investors in the company while having little say in the daily running of the company. However, this arrangement must be clearly detailed in the company’s operating agreement.

What Are the Benefits of DBAs?

DBA names have the following important advantages:

  1. Privacy Protection

If a business owner is the sole proprietor or a member of a partnership, then a DBA name can help protect the individual’s privacy by shielding their name.

  1. Easy Branding

With a DBA in place, a business owner will find it much easier to brand for certain markets. This is especially the case if the company has different lines of business. For instance, if a business owner sells clothing online, a DBA would allow the owner to establish different brand names and websites for dresses, shoes, and purses.

  1. Business Bank Account

A DBA lets a business owner keep his or her personal assets separate from the company’s finances. If a business owner has a DBA, then he or she will be able to open a business bank account. This is not the case if the business owner is a sole proprietor or member of a partnership.

  1. Simple Filing

It is very easy to file for a DBA. Requirements vary according to the state, but in most cases a business owner will be able to file for a ‘doing business as’ name quickly.

What Is the Difference Between DBAs and LLCs?

It is important to understand the many differences between DBAs and LLCs. Above all, a DBA is not a separate legal entity, while a limited liability company is a legal entity that exists separately from the owner.

If an entrepreneur decides to create a limited liability company, then it is necessary to use it on any paperwork that requires the company’s identification, such as business permits and tax returns. Because of this, the process of forming an LLC has different requirements than forming a DBA.

It is also important to remember that it is cheaper to register a DBA. If a business owner is a sole proprietor who does not want the trouble of LLC fees and legal procedures, then a DBA may be a better choice. A DBA allows a business owner to promote his or her business, though the owner will not receive any liability protection.

It is worthwhile noting that many companies classified as LLCs also use a DBA. In fact, many businesses use multiple DBAs. That said, a business owner does not need an LLC to have a DBA. This is because any business structure is free to apply for and use a DBA.

How to Form an LLC

  1. Choose a State

A business owner should first choose a state in which to operate the business. If the company has a physical presence in more than one state, then it will be necessary to register the company as a foreign LLC in every state the company operates in.

  1. Name the LLC

Each state has its own naming rules, but in general, the name must include the acronym ‘LLC’ or the phrase ‘Limited Liability Company.’ In addition, the name cannot include words such as FBI or State Department, which might falsely associate the business with a government entity.

  1. Choose a Registered Agent

The person or business that receives and sends legal forms for a company is known as its registered agent. A business owner can appoint him or herself as one’s own registered agent, but this depends on where one lives.

  1. File the LLC

In order to file a LLC, a business owner will need to complete a form known as the Articles of Organization, Certificate of Organization, or Certificate of Formation. This can be done with the Secretary of State’s Office in the state where the company operates. Luckily, most states allow a business owner to complete this step online.

  1. Receive an EIN

If a business owner operates an LLC, then he or she will need to register for an Ein, which acts as the company’s social security number. A business owner will need this number to open a business bank account and hire employees. To get an EIN, a business owner should visit the IRS website and submit the online application.

How to Register a DBA

  1. Know the State’s Requirements

Typically, a DBA is submitted to a local or county agency for approval. In order to figure out what is required to register a DBA in a certain locale, one should contact the Secretary of State or County Clerk.

  1. Choose a Name

A business owner should come up with a few name ideas and review the county’s records to ensure that no one else has already taken them.

  1. Complete the Required Paperwork

After a business owner knows the requirements for a DBA in their locale and has chosen a name, it is necessary to complete the required paperwork. Most states and counties will provide the forms online so that the owner can download and complete them.

  1. File the Forms

After the business owner has completed the necessary forms, he or she will need to submit them to the correct state or county agency. At this time, it will be necessary to pay a fee. This fee can be anywhere from $10 to $100. It may take one to four weeks for the application to be approved.

  1. Publish Notice

Depending on the state or county, it may be necessary to publish the new DBA with a local newspaper or publication to create a public record of the filing.

Conclusion

There are some similarities between DBAs and LLCs, but there are many noticeable differences between them as well. By understanding both options, a business owner can select the right one for his or her business. While it is more expensive to create an LLC, the limited liability protection is worthwhile. If a business owner is unsure of which path to take, he or she would be best advised to consult a small business attorney for guidance.

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