When it comes to businesses, there are a lot of abbreviations used. “LLC” and “DBA” are two of the most prevalent phrases you’ll hear. But what do they stand for? And more importantly, which one is appropriate for your company?
DBA vs LLC: The Basics
Let’s start with the basics: LLC stands for limited liability company, while DBA stands for “doing business as.”
A limited liability company is a legal business entity that provides limited liability protection to the business owner. This means that the business owner’s personal assets are shielded from debts and liabilities incurred by the LLC.
DBA’s, on the other hand, are not actual business entities. A DBA is simply a fictitious business name under which a sole proprietorship, corporation or partnership can do business.
DBA vs LLC: The Big Picture
The main difference between an LLC and a DBA is that establishing an LLC offers limited liability protection to the business owner, while a DBA does not. This means that if your limited liability company is sued, the plaintiffs can only go after the company’s assets – not your personal ones. However, if you are sued as a DBA, and the DBA was not filed by your LLC or corporation, then the plaintiffs can come after both your personal and business assets.
There are several other key differences between an LLC and a DBA, which we’ll explore in more detail below.
DBA vs LLC: The Details
Now that you know the basics of what each term means, let’s take a closer look at some of the key differences between an LLC and a DBA.
Limited Liability Protection
As we mentioned above, one of the biggest advantages of an LLC is that it offers limited liability protection to its owners. This implies that if your LLC is sued, the plaintiffs can only seize the company’s property, not your own.
However, if you are sued as a DBA, both your company and personal assets may be at risk. This is one of the primary reasons why many businesses decide to establish an LLC rather than simply operate as a DBA.
Legal Entity Status
Another big difference between an LLC and a DBA is that an LLC is its own legal business structure, while a DBA is not. This means that an LLC can enter into contracts, sue and be sued, and own property in its own personal name. A DBA cannot do any of these things – it exists solely as a legal name under which a sole proprietorship or partnership can do business.
This difference is important to keep in mind if you are considering doing business as a DBA. If you want your business to have the ability to enter into contracts or own property, you will need to form an LLC.
Tax Benefits
An LLC is a separate legal entity from the business owner, which means it is taxed as a separate legal entity. This means that the LLC will have to pay taxes on its profits, regardless of whether or not the owners make any money from the business.
A DBA, on the other hand, is not a separate legal entity from its owners. This means that the business’ profits are taxed as personal income for the business owner. This can be a big advantage for businesses that are just starting out and are not making a lot of money, as the owners will not have to pay taxes on the business’ profits.
Formation
An LLC is typically formed by filing articles of incorporation with the state in which the company will be doing business.
A DBA, on the other hand, is typically formed by filing a fictitious name registration with the state in which the company will be doing business. This is usually a much simpler and cheaper process than forming an LLC.
Operating Agreement
One final difference to keep in mind is that an LLC must have an operating agreement, while a DBA does not. An operating agreement is a document that outlines the ownership and management structure of the LLC, as well as the rights and responsibilities of the members.
There are no legal documents required for a DBA, as there is no formal ownership or management structure. However, it is a good idea to have a written agreement between the partners in a DBA, as this can help avoid conflicts down the road.
Can You Have Both an LLC and a DBA?
The answer is yes – you can have both an LLC and a DBA. In fact, many businesses choose to do this in order to take advantage of the benefits of both structures.
For example, let’s say you have a small business that sells products online. You could form an LLC for your business, and then file a DBA for your online store (for example, your company name might be “We Sell Lots of Things” while your DBA could be “WeSellThings.com”). This would give you the personal liability protection of an LLC, as well as the ability to operate under a different legal name than your LLC.
Another common reason to have both a DBA and an LLC is when a business is expanding into new markets or introducing new products and wants to operate under a different business name in those markets or for those products.
For example, a business that originally started out as an online retailer of women’s clothing may want to open a brick-and-mortar store and start selling men’s clothing as well. In this case, the business may choose to operate under a different business name in the brick-and-mortar store so as not to confuse customers.
There are also a few instances where it is required to have both an LLC and a DBA. This is typically the case when businesses are engaging in activities that require licenses or permits, such as selling alcohol or operating a daycare.
It’s important to check with your local government to see if there are any special requirements for your business.
Final Thoughts
As you can see, there are a few key differences between an LLC and a DBA. Personal liability protection, taxation, and the formation process are all different for these two business structures.
However, it is important to keep in mind that you can have both an LLC and a DBA. This can be a great way to take advantage of the benefits of both structures.
If you are unsure whether or not it is right for your business, you should speak with an attorney or accountant who can help you decide.
