On one hand, we have a business structure, and on the other, a legally registered nickname for your established business. It’s time to delve into both concepts in detail.
Let’s get started.
What Is a DBA?
It is a fictitious name (not a business structure) that many companies use when operating under a different name than their legal one.
Sole proprietorships or partnerships, for example, are typically required to use their personal names as their business name. Operating your business as a DBA allows you to use a different name rather than your personal name.
Advantages of Doing Business As (DBA)
- The cost of establishing a DBA is more affordable than opening an LLC.
- You can operate your business under a name different from your personal name.
- It helps establish credibility with your customers.
- You do not have personal liability protection. So if your business is involved in a lawsuit, your personal assets could be at risk.
- It does not allow you to open bank accounts.
What Is an LLC?
A Limited Liability Company (LLC) is a legally recognized business structure that combines some elements of partnerships with corporate structures. It is formed at the state level.
Advantages of a Limited Liability Company (LLC)
- Your personal assets are protected in case of a lawsuit, thanks to the personal liability protection this structure provides.
- The company’s profits and losses are passed through to the owners’ personal tax returns.
- LLCs offer a flexible management structure, allowing you to run your business as you see fit, whether in a centralized or decentralized manner.
- LLCs are slightly more expensive to create than sole proprietorships or partnerships.
Differences Between a DBA and an LLC
There are several differences between a Doing Business As (DBA) and a Limited Liability Company (LLC).
The main difference is that an LLC is a type of business structure, while a DBA accompanies an existing business structure, which can be an LLC, sole proprietorship, corporation, or partnership.
We’ve compiled the most significant differences regarding taxes, procedures, liability, and member protection. You can see it in the following table:
|Formation and Compliance Procedures
|Requires the submission of a fictitious name permit form and payment of a minimal one-time fee. No annual reports or licenses are requested.
|Requires the completion and submission of Articles of Organization, payment of an entity registration fee, and, depending on the state, additional fees, filings, and reports. Governed by an Operating Agreement and must file and pay annual reports, franchise tax, and other requirements.
|For sole proprietors and partnerships, personal assets are at risk in case of a lawsuit.
|Members are not personally responsible for the company’s debts or in case of a lawsuit. They have protection for their personal assets.
|Business Name Protection
|In most states, no exclusive rights are granted for the use of the name. This means another company could register with the same name in that state.
|The company’s name has exclusive rights, and no other business with the same name can be registered in the state (with very particular exceptions).
|Taxed as pass-through entities. DBA’s income and losses pass through to the individual owners’ personal tax returns.
|Functions similarly, with the exception of also having the option to choose S Corp tax treatment, where earnings and losses pass through to Medicare and Social Security taxes.
In conclusion, a DBA cannot replace a business structure. It simply accompanies the type of structure your business has to access the advantages provided by a “business alias.”
Whether or not you prefer to create a DBA under your current business structure depends on your needs, but it is not mandatory.
Frequently Asked Questions
Can a DBA be created under an LLC?
Yes, multiple DBAs can even operate under the same LLC.
Do DBAs pay taxes?
A DBA does not affect how taxes are paid. You should pay taxes based on your business structure, whether it’s a Sole Proprietorship, Partnership, LLC, etc.
Do I need a DBA for my LLC?
It is not always necessary, but it can be beneficial if you are looking to expand your business and operate part of it under a name other than your LLC’s original name.
Need Help Starting Your Business in the United States?
Remember that at Rex Legal, we can assist you in each of the tedious and complex processes. If you want to start your business right away, avoid the complicated part, and ensure that all legal processes are correctly followed, then contact us.