Deciding on whether to create an LLC or a doing business as (DBA) for your new business can be challenging.
You need to weigh all of the factors, including tax considerations, legal liabilities, and ease of use.
DBA Vs. LLC; these two entities have different advantages and disadvantages, so this article will help you understand when to choose one over the other.
What is an LLC?
LLC stands for a limited liability company. It is a separate legal entity and offers limited liability protection for its members. It shields owners from personal liability. This means you are personally protected when it comes to legal and financial responsibility for your business.
The LLC is the most popular business entity type. In fact, more than 90% of all new businesses formed are LLCs.
Offers Pass-Through Taxation
This is a business structure that offers pass-through taxation. All profits and losses go directly to each member of the business, who reports it on their individual tax returns. This means you don't have to file separate tax returns for your company.
An LLC is a business structure allowed by state statute. Each state may use different regulations; you should check with your state if you are interested in starting a Limited Liability Company.
Owners of a Limited Liability Company are called Members
Owners of an LLC are called members. Most states do not restrict ownership, so members may include individuals, corporations, other LLCs, and foreign entities. There is no maximum number of members. Most states also permit “single-member” LLCs, those having only one owner.
What is a DBA?
A DBA, also known as a doing business as name or fictitious business name is an alias for your business. A DBA lets you conduct business under a name that is different from your personal name, the legal name of your LLC or corporation, or another previously registered DBA.
Does not Protect Personal Assets
There are several reasons why creating a DBA could be a good fit for your business. Here are some advantages:
If you don't want your name to appear on public records, you can use a DBA to keep your personal name off the paperwork when you register a business structure like an LLC or corporation.
A DBA can help you create a new brand or product line without creating an entirely separate business entity. This is a useful tool if you want to maintain consistent branding throughout all of your products or services but want to differentiate them with different names.
A DBA lets you test the viability of different products or service offerings without having to create a separate legal business entity for each one. If it turns out that one idea doesn't work out, you can close that particular DBA while continuing to operate under the other ones.
DBA Vs. LLC: What Are the Differences?
There are important differences between these two types of business structures, and the differences can affect your business in many ways.
Here's what you need to know about DBAs and LLCs so you can make the right decision for your company.
Personal Liability Protection
The main advantage of an LLC over other forms of business entities is that the owner's personal assets are shielded from liability arising from the business operations of the entity.
In other words, if someone sues your business and wins a judgment against it, he cannot go after your personal assets, your home, car, and bank account to satisfy the judgment.
A DBA (doing business as) has no legal standing on its own. That is, it does not give any rights or offer protection for the personal assets of its owner. A DBA is simply another name for an already existing entity.
This is means that getting a DBA does not give you limited liability protection. That is, if you have debts or obligations related to your business that you can't pay, creditors can come after your personal assets.
A DBA Is Not a Business Structure
A DBA is also known as an assumed name or fictitious name, depending on what state you live in. It’s simply a way for a business owner to use a different name than their own legal name for their company. A DBA is not a separate entity like an LLC or corporation; it’s just an extension of yourself.
So, if you want to do business under something other than your legal name, you need to file a DBA. For example, if your real name is John Anthony Smith, but you want to call yourself a “super repairer,” you need to file a DBA.
LLC is a Separate Legal Entity
LLCs are typically established by filing legal documents such as articles of organization with the appropriate state agency plus an operating agreement if the members wish to document how the company will be running.
It can have any number of owners or members and can be managed by those members or a designated manager. You will also need your employer identification number, your legal name, and address to open it instead of a fictitious name as with a DBA.
While DBAs do not require any special registration or paperwork, an LLC does.
Forming an LLC Business
The process of forming an LLC can be complicated and tedious. Most states require that you register your LLC by filing Articles of Organization with the Secretary of State's office.
Most states will allow you to file your formation documents online. However, some states require that you mail or fax your documents. In addition, each state requires filing fees. For example, Alabama charges $100 while Georgia charges $50 to file Articles of Organization. Once the state approves your Articles of Organization, your LLC is officially formed.
In addition to filing these documents with the state, you might be required to file an operating agreement containing rules and procedures governing the operation of your business. Unlike other types of businesses, there is no requirement that you file this agreement with any government agency unless the state in which you are doing business specifically requires it. Instead, it is kept on file at your place of business for internal use only.
In contrast to an LLC, a DBA requires fewer formalities and paperwork. Set up a DBA (Doing Business as) in a few simple steps.
1. Prepare the necessary paperwork. The specific documents required to register a DBA vary by state.
These documents often include an application form, written consent from each owner if there are multiple owners, and a small fee. Some states may also require owners to publish notice of their intent to do business under a fictitious name in local newspapers for several weeks prior to filing.
2. Choose a name for your company. When choosing your company name, make sure that it doesn't violate any state or local regulations and that it is available in your state. You may also wish to check with an attorney to make sure that the name you have chosen is not trademarked.
3. Submit the necessary paperwork in person or by mail to your county clerk's office as with the Virginia state or secretary of state's office.
4. Wait for the government's response, which may take several days or weeks depending on where you are located and whether you submitted your paperwork online or by mail.
Should I Use a DBA For My LLC?
You might be wondering whether you need to use a DBA for your LLC. It is not a must unless you want.
Distinguish a DBA from an LLC Name
Your LLC name is the official name of your business entity. It will appear on all forms you file with the state, and in any documents, you draft as an official representative of your LLC. It's also the name that will show up in any public records searches.
If you want to operate your business under a name that is different from your LLC's legal name, then a DBA is necessary. In this case, using a DBA allows you to conduct business under a registered fictitious business name without exposing your identity.
In general, DBAs are not necessary. You can operate using your official LLC name instead of filing a DBA if you wish.
What Are The Tax Benefits Of a DBA?
There are no tax benefits of a DBA. A DBA is not a separate legal entity. Its sole purpose is to create a new name for an already established business.
The tax benefits of a DBA depend on the type of business entity that has filed the DBA. For example, if a sole proprietorship files a DBA, it continues to file its taxes as a sole proprietorship business. If an LLC files a DBA, it remains an LLC for tax purposes.
Can You Turn a DBA Into An LLC?
Yes, any business owner can turn a DBA into an LLC. In most states, you simply file paperwork with your Secretary of State requesting the name change from the assumed business name to a legal LLC name.
Choose an available name that doesn’t infringe on someone else’s trademarked name. Don’t forget that you will need articles of an organization when forming an LLC, among other things.
In addition, if you still have doubts on whether to use a DBA for your LLC, we'll share with you these trusted formations services and registered agents services that can answer all your questions and help with the matter.
Trusted Business Formation Services
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