New entrepreneurs have a lot to figure out, including how–and under what name–to register their new companies with their state licensing agencies. Understanding whether to use a DBA or an LLC to name your business can impact your legal liability, how your company is taxed, and your branding options.
This article will explain the differences between and benefits and disadvantages of DBAs and LLCs. It will take you through what situations each is best suited for so that you can make the best decision for your unique business.
What Is a DBA?
DBA stands for doing business as and is a legal nickname for your business. A DBA enables you to run your business under a name other than your legal name.
People who operate their business as a sole proprietorship or a partnership often choose to use a DBA as their business name instead of their legal name.
Sole proprietorships are unincorporated businesses with one owner. Freelancers often operate their businesses as sole proprietorships.
Partnerships are where two or more entities run a business and share profits and expenses. Lawyers and doctors often form partnerships to share resources and attract more clients.
Usually, a person with a sole proprietorship or partnership must use their legal name as their business name. However, a DBA allows you to register your business under a different name.
For example, let’s say James Miller owns a painting business. He wants his business name to set him apart from the competition (“James Miller” doesn’t cut it), so he files for a DBA for the name “North Florida Premier Painting Services.” He can then advertise his services and open a bank account under his DBA.
A DBA typically costs less than $100. Depending on your state, you may need to renew your DBA after a certain amount of time. For instance, in Florida, you must pay $50 for a DBA, plus $10 for a certificate of status. You must renew your DBA every five years, with a $50 renewal fee.
Some important things to note about DBAs:
- DBAs do not provide the same legal protection as business structures such as LLCs and corporations.
- Owners of DBAs must use their legal name for filing taxes.
- While state laws vary, sole proprietors can’t usually have more than one DBA. LLCs can typically file as many DBAs as they like.
When Should You Use a DBA?
A DBA can be used for marketing purposes, to open a business bank account, and to send and receive payments.
Freelancers, franchise owners, or anyone who wants to operate a business under a name other than their legal name can benefit from using a DBA. Some states require sole proprietorships or partnerships to file a DBA.
LLCs get to choose their business names when they register their businesses. LLCs typically use DBAs when they want to rebrand or expand their markets, as filing for a DBA is usually simpler than legally changing their business name.
What Is an LLC?
An LLC (short for Limited Liability Company) is a business structure in the United States that shields its owners from personal liability for the company’s debts or obligations. That means the LLC protects members’ personal assets from lawsuits against and debts incurred by the LLC.
LLCs don’t have to pay corporate taxes. LLCs can choose to be taxed as either corporations or as sole proprietorships or partnerships. If your LLC is taxed as a sole proprietorship/partnership, LLC members will pay taxes on their share of its profits. These taxes are reported on their personal income tax returns.
If you choose to have your LLC taxed as a corporation, tax benefits may be received by members of the LLC depending on whether it is taxed as a C-corp or an S-corp.
LLCs can cost anywhere from $50-$800 or more in setup and maintenance fees. For instance, in Florida, it currently costs $100 to register an LLC, plus $25 to assign a registered agent, $138.75 for an annual report, $5.00 for a certificate of status, and $100 for a reinstatement fee each year.
When Should You Use an LLC?
An LLC suits entrepreneurs who want to safeguard their personal assets and have control over their business’s tax structure.
Registering as an LLC shows clients that you are serious about your business and can help give your business credibility, which can make a big difference for new companies.
Companies with multiple members can also benefit from registering their business as an LLC, as it can protect members’ assets.
What Is the Difference Between a DBA and an LLC?
A DBA is a name that an established business can use with approval to operate under. On the other hand, an LLC represents a distinct registered business entity in its own right.
The only similarity between a DBA and an LLC is that they both allow you to run your business under a name other than your legal name.
A DBA is an official nickname. It doesn’t provide legal protection to the business owner. While some businesses may need to establish a business structure to register a DBA, it is important to note that a DBA itself does not represent a business structure.
LLC is a business structure that protects members’ personal assets (for e.g. homes, vehicles, etc.) and provide different tax options.
DBAs cost less than LLCs, both for startup and renewal. Filing a DBA generally costs less than $100, while LLC fees can cost anywhere from $50-$800 or more.
DBAs are also simpler to set up. To file a DBA, register your name on state agency website, pay the registration cost and any renewal fees.
In contrast, to set up an LLC you must:
- Make sure another company isn’t using the name you have chosen.
- Designate a registered agent
- File an articles of organization form for your state
- Create an operating agreement
You must also follow your state’s requirements (such as filing annual reports, paying annual fees) to keep your LLC active. Many states will dissolve your LLC if you don’t take steps to keep it active.
DBAs don’t protect your business’s name. Other companies can use your DBA. With an LLC, you generally have to ensure another business in your state isn’t already using the name you’ve chosen. Register the name only after confirming its availability.
In most states, LLCs can have unlimited members, and members can include individuals, corporations, other LLCs, and foreign entities. DBAs are not business structures and do not have members.
Differences Between a DBA and an LLC
| DBA | LLC |
| No legal protection | Limits members’ personal liability |
| Simple to file, and typically costs under $100 to set up | More paperwork, and set up and maintenance fees that can range from $50-$800+ |
| Doesn’t protect your business’s name | Can keep other companies from using your business’s name |
| Your tax status remains the same as it was before filing a DBA | Can choose how your LLC is taxed |
| A DBA is not a business structure, so has no members | Most states allow LLCs to have unlimited members, including individuals, corporations, other LLCs, and foreign entities |
Can an LLC Get a DBA?
An LLC can get a DBA. LLCs typically get a DBA when they want to rebrand or expand their products or services. Also when you don’t want to go through the hassle of legally changing their company name. For example, let’s say you have a copywriting LLC called Advanced Writing Solutions, but you want to expand to offer logo design. You can use a DBA to name and keep the logo design branch of your company, Advanced Logo Solutions, separate from the copywriting arm.
Conclusion
A DBA is best if you have a sole proprietorship or partnership and don’t want to use your legal name as your business name, or if you have an LLC and want to use a DBA for marketing purposes.
An LLC is best if you have multiple owners, want to protect your personal assets, or could benefit from a different tax status.
With a grasp of the differences, benefits, and drawbacks of DBAs and LLCs, Sifter can guide you in making informed decisions and provide comprehensive insights into the various legalities of small and medium-sized businesses.
FAQs
What are the disadvantages of a DBA?
A DBA offers no legal protection. If you are sued or your business goes into debt, creditors can come after your personal assets.
