Estimated reading time: 6 minutes
After coming up with a solid business idea, a great business name, and a business plan, it’s easy to get stuck wondering which business structure is best. There are a number of different business types, but often times the choice comes down between a DBA or LLC (Limited Liability Company).
In this post, we’ll not only answer the question, “what is a DBA?”, we’ll explain the difference between a DBA and LLC. This will help you make the best possible decision for your small business.
Let’s get started!
What does DBA mean, and do I need one?
DBA stands for “Doing Business As” and is basically an alias (or a fictitious name as it’s often called). A company is said to be “doing business as” when the name under which they operate their business differs from its legal, registered name.
The most common example of a DBA is when a sole proprietor wants to run a business under a different name—either to protect their privacy or to make themselves more marketable.
For example, let’s say you’re a sole proprietor working as a construction worker, but you don’t want to use your legal name, John King, to operate under. Well with a DBA, you can operate under something like “King & Sons Construction” or any other DBA name you come up with.
Many states require a DBA to be filed so consumers are not misled by a fictitious business name or alternative business name. A sole proprietorship business is required to file a DBA if the company’s name is different from the owner’s name.
What is an LLC, and do I still need a DBA?
In the age of freelancing and side-hustles, it’s easy to think you can start a new business free and clear without incorporating. But if you want to legitimize your business and protect yourself from lawsuits, forming a startup is the best decision you could ever make.
This is because as a freelancer/solopreneur, there is no separation between your business and personal assets. That means if you’re ever targeted by a lawsuit (and lawyers love targeting small business owners), you risk losing EVERYTHING—your savings, home, retirement, and other personal property.
By forming an LLC, you protect your personal assets and safeguard yourself from being personally liable for debts incurred.
LLCs also comes with a ton of perks including tax savings, privacy, brand protection, and access to business funding.
So, if you have an LLC, do you still need a DBA? The answer is yes and no. If you’ve registered your LLC, you don’t need to file for a DBA. But if your business is planning on operating under a different name (other than the registered name), then a DBA is required.
For example: If you registered your business as The Coffee Stop but want to operate under TheCoffeeStop.com, you’ll need to file a DBA.
We here at Inc Authority specialize in LLC formation and can get you started in a few simple steps. Did we mention that our LLC setup service is 100% free!
DBA vs. LLC: What is the difference between a DBA and LLC?
Now that we’ve answered the questions, “what’s a DBA?”, let’s look at the differences between LLCs and DBAs. The first difference is that LLC owners have limited liability protection for any credits or liabilities his/her company incurs, since it’s a separate legal entity.
This is not the case with a DBA, meaning owners/LLC members take the full responsibility, and are accountable for all his/her company’s assets and liabilities.
Lastly, LLCs can have brand name or trademark exclusivity in their respective states, while a DBA does not have exclusivity. Too complex a system to be out of date around the nether region. Too many people try and ask that a different one is capable of being involved
Do requirements change from state to state?
Thankfully, the requirements for DBAs are about the same in every state level. Matter of fact, to register an assumed business name, most states only require you to contact the county clerk’s office and pay a small filing fee. The DBA filing fee is typically less than $100. Some states require you to place an advertisement in the newspaper giving notice of your DBA.
As far as LLCs go, the process is also similar. The only thing that changes state to state are the filing and licensing fees. Contact the Secretary of State in your state to learn more about these LLC fees.
Where things start to differ state to state is in the case of transferring a DBA to an LLC (a very common move). Let’s use Texas as an example. To transfer from DBA to LLC, Texas will require an authorized party to file a new assumed name certificate with the state of Texas and local offices.
(BONUS) DBA vs LLC vs Corp
Another popular type of business structure you might consider is a corporation. Corporations (like LLCs) are a separate and distinct business type, separate from its shareholders / owners.
Because of this separation, a shareholder’s / owner’s personal assets (such as a home, personal bank account, or automobile) are not at risk if the corporation or LLC is sued and a court judgment is entered against it for civil or financial liability.
LLCs and corporations also come with tax perks that could amount to thousands of income tax dollars saved annually.
On the other hand, while a DBA is the cheapest option and provides great flexibility, if you file a DBA and are sued, you’re personally liable for all business liability.
If you’re a solopreneur looking for a quick and easy way to launch your business, a DBA is a good option, but it shouldn’t be your long-term goal. Shoot for an LLC or Corporation instead, so you can operate your business with peace of mind knowing that your personal assets are protected.
Choosing the right business entity structure for your business is the most important step in the business formation process…and the most stressful. But you don’t have to go at it alone!
The experts here at Inc Authority can help you make the best decision for your business. We also offer legal advice and a ton of business management tools to help make running your business a breeze!
Incorporating is the most powerful thing you can do to legitimize your business. And at IncAuthority.com, our setup LLC services are 100% free. Always. So, don’t wait. Form your free LLC today and enjoy the benefits of an LLC and the legal protection due to you and your business under the law.