When starting a new company, it’s common to be faced with the decision between registering a Doing Business As (DBA) or a Limited Liability Company (LLC). While both of these will allow a disregarded entity to operate under a name other than your personal name, there are a number of key differences.
An LLC is a formal business structure that provides personal liability protection, whereas a DBA is simply a registered alias for your business. Knowing the distinctions between a DBA vs LLC is essential for you to be able to choose the right option for your business needs and goals.
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DBA vs LLC: An Overview
As stated above, an LLC is a fully recognized, independent legal entity whereas a DBA name is a fictitious business name that a sole proprietor or partnership can use to brand their business.
To help you better understand the differences between these structures, we’ve decided to start off by explaining what each of them are in more depth.
What is a DBA
A company is said to be “doing business as” when its business operating name is different from its registered name. While this mostly applies to sole proprietors and partnerships, LLCs can also submit DBA name filings if they want to operate under multiple names.
It’s important to highlight that registering a DBA name doesn’t form a separate legal entity, meaning you won’t be protected by limited liability as the owner. As such, your personal assets (e.g., your car and house) could be used in order to settle business debts or liabilities.
All a DBA name allows a business to do is to appear more like a formal business entity without having to form an LLC. However, you will be able to do things like open a bank account and receive payments under your DBA name.
What is an LLC?
An LLC is a business that operates as a different legal entity from its owners. Its owners are called members and the business can either be run by all its owners (member-managed) or a small group of elected individuals (manager-managed).
Regardless of the management structure an LLC chooses, its members’ personal assets will be protected from the company’s liabilities as it is treated as a separate entity for legal purposes.
Because LLCs are independent legal entities, the owners must complete multiple steps and meet more requirements to form one. Additionally, you’ll need to operate your business under the LLC’s legal name — unless you register a DBA name for it.
An LLC also is eligible to obtain an Employer Identification Number (EIN) as well as open a business bank account. On top of this, it also has some flexibility in terms of its tax designation — unlike disregarded entities with just a DBA, which are just treated as individuals.
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DBA vs LLC: Advantages and Disadvantages
With a better understanding of what DBAs and LLCs are, we’ll now cover the benefits and drawbacks of each of these filings so that you can select the right one for your business.
Advantages of a DBA
There are three primary advantages associated with filing a DBA name, including:
- Flexibility: A DBA name offers considerable flexibility in your branding efforts because it allows you to conduct business under various names without needing to create separate legal entities for each one
- Personal Privacy: DBA names help to cushion the owners from having their names publicly associated with their businesses. While you’ll still have strong ties to your business, filing for a DBA name will add an additional layer of protection
- Limited Legal Requirements: DBA names are extremely easy to set up — there’s no limit to how many of them you can register, and many states even allow you to do it online. Additionally, there are minimal legal requirements and applications are typically processed within a few business days (though this will vary by state)
Disadvantages of a DBA
Using a DBA name for your business does, however, come with several drawbacks, including:
- Tax Limitations: While a DBA name may allow you to run your business under a different name, it does not provide any tax benefits or separate tax treatment because the essential rules governing sole proprietorships and partnerships still apply
- No Rights to the Name: A DBA name isn’t a trademark, registering one doesn’t give you any rights to the name and certainly doesn’t give you the power to prevent other businesses from using the same name. This is why there are so few legal requirements to register one
- State Restrictions: Since each state has its own specific requirements regarding how to register a DBA name, these filings are only valid within the state in which you apply for one. This limits the flexibility of using a DBA name because you’ll only be able to use them in the states where you’ve registered them
- No Liability Protection: A DBA name gives your business a fictitious name but doesn’t protect you from any liability. As such, if your company is a sole proprietorship, you’ll be forever tied to its liabilities regardless of how many DBA names you register
Advantages of an LLC
Forming an LLC also provides three key benefits, which we’ve outlined below:
- “Pass-Through” Taxation: The Internal Revenue Service (IRS) views income from the business as your income, meaning that business profits will be taxed just like it would if you worked for any other company (and thus avoiding the double taxation paid by corporations)
- Limited Liability Protection: As the name LLC implies, members have limited liability protection from debts incurred by the company. In simple terms, the LLC and its members are different entities — meaning that, if the firm runs into losses, the owner’s personal assets are protected and can’t be liquidated
- Flexible Management Structure: There are no restrictions on how owners can choose to manage an LLC as members can opt for the business to adopt a member managed or manager managed LLC format
Disadvantages of an LLC
As with any business structure, LLCs have a few disadvantages.
- Strict Regulations: Because LLCs are independent entities, the government has a host of regulations that dictate how you can form and operate them. Due to the liability protection they receive, LLCs can’t engage in certain business activities (e.g., they can’t legally operate as banks, insurance companies, or medical service companies)
- Difficulty Securing Investors: Investors typically avoid funding LLCs because the IRS taxes LLCs as a partnership (with “pass-through” taxation) and that’ll complicate an investor’s personal tax situation
Read our LLC guide for a more detailed explanation of an LLC’s advantages and disadvantages.
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DBA vs LLC FAQ
Is it better to have a DBA or LLC?
It all depends on your business goals. The main difference is that a DBA name is a fictitious business name for a sole proprietorship or partnership while an LLC is a formal legal entity recognized by the law.
Ultimately though, you don’t really need to choose as you can obtain both a DBA and an LLC — the two aren’t mutually exclusive.
Does a DBA protect you?
Using a DBA name won’t protect you from the company’s liabilities. It only gives your business a different name you can use to transact with and market its offerings.
However, it is much easier to obtain than forming an LLC — which is surrounded by a host of regulations and procedures you must follow.
Does a DBA pay taxes?
A DBA name isn’t a legal entity according to the law and thus doesn’t pay taxes. The IRS taxes sole proprietorships and partnerships that use DBA names through the individual tax returns of their owners. A DBA name doesn’t require a separate EIN.
Can someone take your DBA name?
While there are some anomaly states, the majority don’t guarantee exclusive use of the trade name, meaning anyone can use it if they want.
Additionally, because a DBA name isn’t a company’s official business name, there are no name searches conducted to check if any other existing business uses a specific name.