DBA vs. LLC

A small business must often decide whether to become a corporation or a limited liability company (LLC). However, sole proprietorships, general partnerships and corporations can also register a “Doing Business As” (DBA, d/b/a or dba) to conduct business under a company name.

A DBA name isn’t a tax status or a type of entity like a sole proprietorship or LLC, and it doesn’t include any personal liability protection. It’s simply a way to operate your business under a different name.

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Now let’s compare a DBA with an LLC so you can choose the best business license for your needs.

DBA

Maybe you’re a sole proprietor ready to form a business entity, but you don’t want to use your own name. Do you choose a DBA or an LLC? Read on to see how to create a DBA, the pros and cons of DBAs, how to file tax returns and register business licenses with a DBA and more.

What is a DBA?

Registering a DBA enables a company or individual to do business under a different name. By default, a sole proprietorship or general partnership takes the legal name of the owner or owners. For example, a general partnership between Don Draper and Peggy Olsen would need to file a DBA to conduct business with a company name different from their own, such as Draper & Olsen Advertising.

Once you have established an LLC, you could also register a DBA to do business under a different brand name than the one you originally selected. The difference between a DBA and an LLC is that the latter refers to a structured company, while the former is simply a vanity name. It’s also sometimes called a fictitious name.

Imagine you have a website like Jinglebell.com and conduct all your business through that site. Without a DBA, you can’t simply use the brand name “Jingle Bell'' or even “Jinglebell.com” to manage your business because you remain a sole proprietorship, and thus, your business will be registered under your legal name.

If your business name is creative or descriptive or your website is branded as anything other than your legal name, you’ll need either a DBA to do business under that name or an LLC to create a separate legal entity with that name, assuming it’s available.

A DBA and an LLC are not mutually exclusive. While an LLC can exist independently of a DBA because it is a legally established corporation, a DBA can apply to an LLC or any other type of business. You still need a business license to operate a DBA, whether or not it is also an LLC. An unincorporated sole proprietorship or general partnership must register a DBA if the owner wishes to operate under a company name that is different from their own.

Who needs a DBA?

In the example above, Don and Peggy registered a DBA to give their general partnership a more descriptive name. A DBA involves fewer formalities and lower costs than an LLC, which is why it is often preferred.

You can also have more than one DBA, meaning a food supplier could simultaneously operate as a food delivery business, caterer or restaurant under different names. It is much easier to establish several DBAs than to form multiple LLCs.

Furthermore, filing various DBAs for your businesses also simplifies accounting since you can keep separate bank accounts and balance sheets for each DBA without adhering to the complicated requirements of an LLC.

How does filing a DBA work?

Filing a DBA is fairly simple: You almost always complete a certificate form and file it with the county clerk. Some states may also require you to announce your DBA in a local newspaper, which carries a nominal expense.

Are there filing fees or other costs?

You will typically pay a small startup fee followed by a renewal fee every one to five years for a DBA.

DBA pros

Here are some of the advantages of filing a DBA:

• Registering a DBA is simpler: and less expensive than incorporating an LLC.
• You will enjoy privacy protection: since you won’t be operating under your legal name.
• Having several DBAs simplifies branding: especially for multiple businesses.
• Banking is more accessible: secure and straightforward with one or more DBAs.

While there are many advantages to a DBA, there are a few ways it might fall short.

DBA cons

These are some of the disadvantages of choosing a DBA instead of an LLC:

• You remain personally liable: since there is no separation between you and the business as a legal entity. If someone sues your business, you and your personal savings are at legal and financial risk. In the case of an LLC, a separate legal entity is created, which protects you and your personal finances from liability.

• Unlike a DBA, an LLC comes with certain tax benefits: such as the flexibility to choose your tax status and claim certain qualified deductions. LLCs can choose to be taxed as a sole proprietorship, partnership or corporation, depending on what makes the most sense for the business. Plus, LLCs may be able to deduct health insurance premiums or retirement plan contributions, while DBAs may not.

Ultimately, the choice between a DBA or an LLC depends on what you want from your company, where you see it heading and how you want to approach taxes.

LLC

Some business owners may prefer an LLC to a DBA, but it may not be the right fit for everyone. Let’s take a look at the reasons why.

What is an LLC?

A limited liability company is a business entity that exists separately from you and your assets for legal and tax purposes. Whereas DBA income is taxed like any other personal income, an LLC passes income through the business, which won’t immediately affect your personal tax return. This means you only pay income tax on your share of the company’s profits.

Who needs an LLC?

Why should you choose an LLC rather than a DBA or some other form of corporation or partnership? It makes sense if you want to avoid the ownership complexities of a corporation but still prefer the liability protection or tax benefits provided by an LLC. It's also convenient when formalizing a partnership so that neither party is individually liable for the debts and obligations of the business.

How does LLC filing work?

To create an LLC, you must file a reasonably straightforward document called your articles of organization with the local Department of State. (If you were forming a corporation, you would file your articles of incorporation.) This is done by the company’s registered agent, the person who communicates on behalf of the LLC.

Some states require you to file an annual report for your LLC to remain in good standing and legally operate. This may or may not entail its own fees and is another difference that sets it apart from a simple DBA.

Are there filing or registration fees?

LLC annual fees can be pretty hefty, especially when compared to the cost of a DBA. Because LLCs are administered at the state level, these costs may differ but typically range from $35 to $500, depending on where you’re forming and operating the company.

LLC pros

Millions of business owners prefer establishing an LLC to simply registering a DBA because it protects them in critical ways. The pros of LLCs include the following:

• Liability protection: limited liability means your assets and property are protected regardless of what happens to the business.
• Variable investor participation: members can be involved in the business's daily operations to whatever extent is agreed upon, from full participation to a silent partnership.
• Easy setup: file online, name your registered agent, create your operating agreement, and get an EIN.
• Tax filing flexibility: an LLC can file as a sole proprietorship, partnership, S corporation or C corporation.

The last benefit, tax filing flexibility, is the second major advantage of an LLC after its liability protections. An LLC can be treated as:

• A sole proprietorship or general partnership where the company’s income is taxed cumulatively with your other personal income.
• A C corporation is taxed separately so, you only pay taxes on the income you personally receive as a shareholder.
• An S corporation so that your company will pass through all income, losses, deductions, and credits to shareholders for federal tax purposes.

LLC cons

There are some disadvantages to choosing an LLC rather than a DBA:

• Price: an LLC is more expensive to establish and maintain than a DBA.
• Paperwork: an LLC requires far more ongoing documentation.

What are the most important differences between a DBA and an LLC?

A DBA offers no tax benefits or liability protection, whereas an LLC is explicitly designed for those purposes. These are two ways to register and legally formalize your business, and both will enable you to open bank accounts in their name. Depending on the state and the type of business, forming an LLC might make more sense than filing a DBA.

It’s wise to consult an attorney before making any final decisions.

How do you decide which option is best for you?

The decision to form an LLC or register a DBA for your existing business depends on your preferences and business needs.

One company operating several brands might simply establish several DBAs and use the names to create websites, logos and the other collateral that a new business requires. Another company looking for something more permanent and formalized might choose an LLC.

Can you have both?

Yes, an LLC can register a DBA or multiple DBAs. In this case, you wouldn’t choose between them but rather do both in sequence.

First, form your LLC and leave your sole proprietorship behind. Then, you can register as many DBAs as you need, as long as you’re not impinging on another company’s trademark or using one of the terms forbidden by your state, such as “lottery” or “chamber of commerce.”

Register your company

When deciding whether to form a DBA or an LLC, you must do what’s in the best interest of your business.

Although an LLC provides liability protection and tax benefits, it only makes sense to establish one if your projected income is enough to cover the costs of its creation and administration.

Before applying for an LLC, think it through and seek professional guidance. Remember that the owners or members of the LLC can pay taxes in a variety of ways, so you must be certain that all members are aware of your company structure, its tax election, each member’s responsibilities and their ownership percentages.

However, if your company is a sole proprietorship looking for a business alias, a DBA or set of them may suffice. Note that you must get a business license before filing a DBA certificate.

After filing your DBA, you’ll be able to operate under the business name of your choice, and you’ll be taxed on the company’s assets as if they were your own because a DBA is not a separate legal entity.