Starting a business is a thrilling experience. But beyond the excitement and adventure can be a deep feeling of being overwhelmed. You’ll have to make many impactful decisions, including what kind of naming structure your business will have. Two options that will most likely come up are DBA and LLC.
Both business structures have their perks, but they’re not interchangeable. For this reason, understanding the differences can save you many potential headaches (and maybe even some money). This DBA vs. LLC comparison guide will explain everything you need to know so you can choose the right option for your unique business needs.
Table of Contents
What is a DBA (doing business as)
What is an LLC (limited liability company)
DBA vs. LLC: The key differences to note
1. Ease of setup
2. Naming rights
3. Liability shield
4. Tax obligations
When should new businesses use a DBA or LLC?
When to use a DBA?
When to use an LLC?
When to use both
Final words
What is a DBA (doing business as)
A DBA, short for “doing business as,” allows a business to operate under a name different from its legal name. You can also call it a fictitious, assumed, or trade business name. Usually, sole proprietors and partnerships use DBA, especially if they don’t want to do business under their legal names. However, even LLCs and corporations can register a DBA to use a different name for business.
For example, if John Doe wants to run a writing business as a sole proprietor, his business name will be “John Doe” legally, as sole proprietorships don’t count as separate entities. However, he can brand his business as “Creative” if he registers a DBA. A DBA allows a business like John’s to create a unique brand identity without shutting down and starting a new legal entity.
Legally, anyone will see the original business and the DBA as the same entity. Additionally, registering a DBA in your state ensures that the government properly tracks your income for tax purposes, regardless of the name on your checks. This helps align everything with tax regulations and prevents potential financial issues.
What is an LLC (limited liability company)
The LLC (or limited liability company) business structure offers liability protection to its owners, which is not true with a sole proprietorship. Since an LLC is a separate legal entity from its owners, its assets stay protected from the company’s debts and obligations.
LLC owners, called members, benefit from a more flexible structure compared to corporations. They can also choose pass-through taxation, where the company’s profits and losses are only reported on their tax returns. This way, members only pay income tax once on their earnings.
On the other hand, corporations get taxed twice (once on their profits at the corporate level and on the owner’s received income). LLCs help their members avoid this double taxation by allowing the government to tax only once at the individual level.
DBA vs. LLC: The key differences to note
While DBAs and LLCs allow businesses to run with a different name, they don’t get any more similar than that. Here are the key differences you should know before choosing which option is right for you:
1. Ease of setup
Registering a DBA is a simple process for an existing business. While both structures need paperwork and registration fees, DBAs usually involve a one-time fee (with occasional renewals) and minimal paperwork. In contrast, setting up an LLC takes more effort, requiring detailed formation documents, a filing fee, and, in many cases, ongoing annual reporting based on your location.
2. Naming rights
Don’t confuse DBAs and LLCs with trademarks. They don’t offer the same level of protection as the symbol. However, an LLC provides some advantages that make it close. For instance, registering an LLC in most states prevents other businesses from using the same name. On the other hand, DBAs won’t stop others from using the name.
3. Liability shield
A DBA won’t provide any liability protection. So, if you’re running a sole proprietorship or partnership under a DBA, it won’t stop you from personally handling any debts, obligations, or legal issues the business faces.
In contrast, liability protection is one of the biggest benefits of an LLC. Since an LLC is a separate legal entity, its members are not legally tied to the business’s troubles, meaning they want to tackle the company’s debts or legal problems personally.
4. Tax obligations
Registering a DBA for your sole proprietorship won’t change your tax obligation, so don’t think you will be taxed similarly. However, your government may still tax you like a sole proprietorship if you form an LLC with only one member. LLCs generally have the flexibility to choose a different tax structure, like a C or S corporation, which is great if you want to bring in outside investors.
When should new businesses use a DBA or LLC?
Although you can use a DBA and an LLC together, understanding how each works and what they offer is still important. For this reason, weighing their differences can help you decide what’s best for your business.
When to use a DBA?
Before registering a DBA, ask yourself if it will add value to your current structure. If you’re a sole proprietor, a DBA offers a simple and affordable way to operate under a different name. But suppose you’re already running an LLC, corporation, or partnership. In that case, a DBA can help you rebrand or align your name, especially if you want to expand into new markets or business areas.
When to use an LLC?
How do you know if an LLC is the better structure for your business? It depends on how much liability protection matters to you. Forming an LLC could be a smart move if you have personal assets you want to shield from potential business risks. An LLC is also great if your business has multiple owners or if you prefer something more structured than a partnership.
Protecting their owners is not the only thing LLCs can do. They also provide clear guidelines for how members run a business and allow for defined roles among members. So, if you’re planning for significant growth or looking to attract investors, LLCs’ added structure and credibility can be a valuable advantage.
When to use both
You may also use an LLC and a DBA. For example, forming an LLC provides liability protection and tax benefits, but some states require “LLC” or a similar designation in the official name. If you want a simpler, more marketable name for branding and marketing (without the formal “LLC” tag), you can register a DBA to operate under a more customer-friendly name.
Final words
A DBA and an LLC are great options for different purposes. A DBA is perfect if you want to change your business name without modifying your company’s structure, making it especially useful for sole proprietors. On the other hand, an LLC provides personal asset protection and pass-through tax benefits. And if you still want to use a different name for branding, you can register a DBA alongside your LLC.
