LLC vs. DBA

Deciding between a limited liability company (LLC) and a “doing business as” (DBA) name is one of the first major steps you’ll take on your entrepreneurial journey. This choice impacts everything from legal liability to taxes and growth potential. Our straightforward LLC vs. DBA guide cuts through the confusion, offering the essential insights you need to make the best decision for your new business. 

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LLC vs. DBA: What’s the Difference?

DBA names and LLCs are often mentioned in the same breath, but they serve very distinct purposes in the business world. While a DBA name allows for branding flexibility, an LLC combines the legal safeguards of a corporation with the tax efficiencies and operational flexibility of a partnership. 

What’s an LLC? 

An LLC is a formal business structure that combines the liability protection of a corporation with the flexibility and tax benefits of a partnership. Owners, known as members, are not personally responsible for business debts and liabilities. This means LLCs usually protect their owners’ personal assets if the business faces legal issues or bankruptcy.

What’s a DBA? 

A DBA name isn’t a business structure, but a registered name a business owner uses to operate that’s different from their personal name or the legal name of their business. It’s often used by sole proprietors, partnerships, and even corporations that wish to do business under a different name.

Key Differences 

Now that you have an understanding of what LLCs and DBA names are, it’s important to understand the key differences between the two.

  • Legal Protection: LLCs provide liability protection for their owners whereas DBA names do not offer such protection.
  • Taxation: LLCs can choose their tax status, including being taxed as a sole proprietorship, partnership, or corporation. DBA entities are taxed according to the legal structure under which they operate (e.g., a sole proprietorship using a DBA name is taxed as a sole proprietorship).
  • Formation and Maintenance: Forming an LLC involves more steps, including filing Articles of Organization and paying a filing fee. Getting a DBA name requires registering the business name with the appropriate local or state agency, but involves fewer formalities.

Key Similarities 

While DBA names and LLCs have a few key differences, the two also have multiple similarities like: 

  • Business Name Benefits: Both LLCs and DBA names allow businesses to operate under names other than their legal names. 
  • Use Cases: They both can be used to open bank accounts, sign contracts, and market businesses under their chosen names.

When Should You Use a DBA? 

There are multiple reasons you may choose to use a DBA name, such as:

  • If you’re a sole proprietor or partnership and want to do business under a name other than your personal name without forming an LLC.
  • When you already own an LLC or corporation and want to operate under a different name for a new line of business.

LLC vs. DBA: Pros and Cons 

Both DBAs and LLCs incur their own pros and cons. Before you choose to use a DBA or form an LLC, it’s important to understand the disadvantages and advantages of each. 

  • LLC Pros: Liability protection, tax flexibility, increased credibility
  • LLC Cons: More expensive and complex to start and maintain
  • DBA Pros: Simple and inexpensive to register, allows for the operation of multiple businesses under one owner
  • DBA Cons: No personal liability protection, limited growth potential

Frequently Asked Questions 

What is better, an LLC or a DBA?

It depends on your business needs. An LLC is better for those seeking liability protection and flexibility in taxation. A DBA suits business owners who want a simple way to operate under a different name without forming a new company.

What are the disadvantages of a DBA?

If you’re using a DBA as a sole proprietor or partnership, the main disadvantage is the lack of personal liability protection. If your business incurs debt or is sued, your personal assets could be at risk. 

Is it better to have multiple LLCs or DBA?

Multiple LLCs might be better for separating liabilities among different business ventures. Multiple DBAs are suitable for operating various businesses under one legal entity without the need for separate LLCs.

What are the benefits of a DBA for an LLC?

An LLC can use a DBA to branch out into different business ventures without forming new LLCs, allowing for flexibility in branding and marketing.