If you are a business person, you may be interested in doing business as either an LLC or a DBA.
In order to decide between LLC or DBA, we’ll discuss what these business types are and when they may be more appropriate for your company in this article.
Contents
What is a DBA?
A DBA is a “Doing Business as” name, which is the name that the owner of a business uses when operating the business.
The DBA name does not constitute an actual legal entity, but rather gives individuals the ability to maintain their privacy while conducting business activities.
A DBA is created by filing a document with your state’s Secretary of State office or equivalent agency. If you already have an LLC, then there’s no reason to set up another entity.
You’ll just need to register your DBA. This will cost you around $30-$50 per state in filing fees, but it’s well worth it for the privacy that it provides.
Can Be Used for Any Purpose
A DBA can be used for any business product or service. For example, if you’re an artist who sells paintings through Etsy under your own name but also sells paintings through another site under another name (e.g., Sally Smith), then the second case is a DBA.
What is an LLC?
A limited liability company (LLC) is a legal entity that protects its owners from lawsuits or debts related to the business. An LLC is registered with the state where it operates and can sue or be sued under its own name.
The LLC structure has become popular for small businesses because it combines some of the tax benefits of sole proprietorships and partnerships without having to pay double taxes as corporations do.
What Does a DBA Do?
Helps with Marketing
The reason why you might want to use an assumed business name is for marketing purposes. For example, if your name is John Smith and you own a landscaping company, customers might not want to hire you because they don’t want their lawns to be mowed by someone named John Smith.
But if you run the business under an assumed name like Acme Lawn Care, then customers will be more willing to hire you because they will feel like they’re hiring someone that is right for the job.
What Happens When a Company Creates a DBA?
When you create a DBA and you have a separate company, you are essentially creating two separate entities under one roof: the parent company and its subsidiary.
In this case, the parent company is your original business and the subsidiary is your DBA
Benefits of Using a DBA
There are many benefits to using a DBA, including:
Protecting Your Privacy
If you use “doing business as” name instead of your legal name, it makes it harder for someone else to find out who owns your business whether they’re competitors or criminals looking for information about owners with large bank accounts.
This means that if someone does want to locate you, they’ll have to do more legwork before they can find you.
It Offers Unique Branding Opportunities
A DBA can help you create a brand that’s more memorable and easy to understand than your legal name.
For example, if you have an established business that’s been around for years but wants to start another business under a different name, registering a DBA can give you the freedom to create a new identity for this new venture.
This can come in handy if your existing business has already saturated its market or if you want to create something new and fresh that reflects the image of your company.
Disadvantages of DBA
DBA business is a great way to start your own business. However, there are also some disadvantages that you should be aware of before deciding to open a DBA business.
Taxes
The IRS does not recognize “doing business as” (DBA) as a legal entity. Therefore, the IRS will treat your DBA as you personally do business so that all income flows through to your personal tax return.
In contrast, an LLC is considered its own legal entity for tax purposes and pays its own taxes on any profits earned by the company.
Lack of Naming Rights
The biggest disadvantage of DBA is that it does not give you any ownership rights to the name. A business person can use your DBA name for any purpose and this is not good for your business.
You will have to constantly watch out for your registered name being used by other companies.
DBA Does Not Offer Personal Asset Protection
The main disadvantage of a DBA is that you don’t get asset protection. An LLC can protect your personal assets from creditors, but a DBA does not.
If you’re starting a business and have any assets to protect (like a house), then you should form an LLC.
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