DBA Vs. LLC: What Are The Differences In 2024?
Reviewed by Jazmin Castello - MBA
The article is checked by our editorial team, Which includes entrepreneurs who are painfully aware of how overwhelming and challenging it is to start a business for the first time.
When starting a new business, the first step is usually researching the best business structure necessary for your business development. However, one of the most confusing decisions business owners encounter during business setup is whether to file a DBA or form an LLC. While the two business structures have some similarities, they stand apart in many ways. Our comprehensive DBA vs LLC comparison will serve as a guide to help you choose the right business structure depending on your business needs.
The post covers a clear clarification of what a DBA and an LLC mean, DBA vs LLC pros and cons when you need to use either of the two structures and much more. For the business owners who may still find it hard to have their pick, we have done the picking for you along the way. Let’s start by knowing what a DBA and an LLC mean.
Differences Between LLC & DBA
- Limited Liability Protection
- Trademark Protection
- Registration And Maintenance
- Tax Considerations
- Fees Associated With DBA Vs LLC
Differences Between LLC & DBA
Limited Liability Protection
Limited liability protection is always the most popular difference between DBAs and LLCs. LLCs guarantee limited liability protections. That is to say, your personal assets remain completely separate from your business assets. In that case, if someone sues your LLC, your personal assets like your home, car, and personal bank account(s) will not be in line to satisfy the debt.
Under a DBA, there is no distinction between your personal assets and business assets. As such, if you do not form an LLC or other business structures that offer personal liability protection, you will be personally liable for all the expenses incurred.
Trademark Protection
A registered trademark provides you with a tool to prevent someone from using a similar mark like yours and ride off the back of your business. An LLC formation automatically offers you trademark protection. That is to say, it prohibits anyone in the entire state, county, or city from using your business name. For the nationwide protection of your trademark, you will have to register with the United States Trademark and Patent Office. (USPTO).
On the other hand, DBA filing does not guarantee trademark protection. Meaning, that someone else from anywhere in the nation even in the same city can use your business name.
Registration And Maintenance
Registration processes for both LLC and DBA involve some paperwork and payment processes. However, the payment process and the extent of paperwork involved are different. Even though the registration charges for both of them vary depending on the state, the cost for an LLC formation is always higher than registering a DBA in most states.
Even more, an LLC formation involves a lot of paperwork due to formal legal documents used to establish it, such as articles of organization. In some cases, you may seek a lawyer referral for legal advice especially when starting a business for the first time. A DBA registration process on the other hand is very simple and doesn’t require a lawyer referral or filing legal documents like articles of organization and other related articles.
The maintenance involved is also a noticeable difference between a DBA and an LLC. For instance, once you register your DBA name, you can operate your business like before, except for some renewal charges that you will incur. On the other hand, you will have to treat the business as a separate legal entity once you create an LLC, or else, you will lose your liability protection. That means you will have to follow corporation formalities such as creating an operating agreement and much more.
Tax Considerations
Merely registering a DBA will not give you special tax benefits. In simple terms, you will be taxed the same way you used to be taxed before you registered a DBA. Income and losses that your organization makes pass through your personal tax return and are taxed accordingly.
Forming an LLC on the other hand comes with several tax benefits. For instance, an LLC allows each LLC business owner to choose corporate taxation. To choose Corporation status, the LLC must file IRS form 8832, while S-Corporation demands that the LLC file IRS form 2553.
Generally, LLC owners choose to be taxed as S-Corporation in order to minimize their taxes.
Fees Associated With DBA Vs LLC
Once you file for a DBA, you will need to periodically pay some renewal fees. Renewal typically requires a similar procedure as registering an initial application. However, the publication is no longer a requirement during renewal. Therefore, to conduct a business under an assumed name, you will need registration, publication, and renewal fees, both of which vary depending on the state/county/city.
On the other hand, in addition to an LLC formation fee, there are always ongoing maintenance charges. These include annual filing fees, annual franchise or entity taxes, and annual report fees. However, you may have a long list depending on your state.
Similarities Between DBA & LLC
LLC and DBA don’t share a lot of similarities. The two noticeable similarities include:
- Both enable business owners to brand their businesses different names other than their legal names.
- Both allow business owners to open business bank accounts and perform banking under their acquired business names other than their personal account names.
What Comes First: LLC Or DBA?
If you have created an LLC and your LLC wishes to operate a business under a name different from its legal name, you will need to file a DBA for your LLC. Think of an LLC as a business structure (like a corporation, partnership, or S-Corporation) allowed by state statute while a DBA name is just a requirement for your business development.
What Is An LLC?
Limited Liability Company[1] (LLC) is a business structure allowed by state statute as a separate legal entity. Meaning, that when you form an LLC, you will be doing business under an LLC name as a separate legal entity from your personal assets. In that case, your LLC business can only be sued for its assets while your personal properties remain protected. That is what we mean when we say an LLC offers personal liability protection.
Even more, under an LLC, you are not held solely accountable for any loss or fraud the business incurs. Instead, all LLC members are held jointly liable for any loss of business caused. However, this doesn’t apply to tax considerations. IRS considers one member as a sole proprietorship when it comes to taxation. More on LLC vs DBA tax consideration is discussed below.
But in general, an LLC formation will make your business look more professional, trustworthy, and legitimate. For that reason, it guarantees more customers, suppliers, and lenders.
Will I Avoid Self-Employment Taxes By Forming An LLC?
LLCs and corporations will not exclude you from self-employment taxes entirely but can save you a lot of cash from taxes. For instance, once you form an LLC, you can choose to be taxed as an S-Corporation which comes with some special tax treatments.
Do I Need An LLC If I’m A Sole Proprietor?
No mandatory requirement to form your sole proprietorship if you are planning to conduct business under your legal name. Sole proprietors who want to operate under different names from their legal names can file for a DBA.
What Is A DBA?
A DBA (Doing Business As) on the other hand isn’t actually a legal structure or a sole proprietorship as some business owners regard it. In essence, a DBA[2] (also known as a fictitious name a trade name, or an assumed name) allows a business owner to legally use a business name without having to create a formal legal entity.
A sole proprietor, Jane Smith can decide to conduct business under a DBA name, “Jane Smith Professional Services”. However, it is worth noting that a DBA is not restricted to a sole proprietor alone. To be realistic, every business owner who wants to operate his business under a different business name other than his legal name or legal business entity should file for a DBA.
Apart from using a name different from your legal business entity, filing a DBA name makes it easier for business owners to open business accounts and make payments and withdrawals in the name of the business. As a general rule of thumb, sole proprietorships or partnerships without DBAs are not legally allowed to open a business bank account.
Advantages & Disadvantages Of A DBA Vs LLC
Now that you have learned the difference between a DBA and an LLC from their meanings, let’s go ahead and see some of the DBA vs LLC pros and cons. This will offer you enough reason to form an LLC or file a DBA.
| LLC | DBA | |
| Pros | Offer personal liability protection. LLCs may get a federal tax identification number from the IRS making it easier to hire employees LLCs guarantee a lot of tax benefits No limitations on the membership of an LLC | Help reduce expenses and paperwork when operating multiple projects. Filing a DBA allows you to change your name or business name with little formality. Filing a DBA allows you to legally carry out a business under an assumed d name other than your legal name or legal business entity |
| Cons | LLCs are more expensive to start and maintain than DBAs They tend to have complex tax filing systems. They don’t allow you to pay yourself wages | You are not bound to personal limited liability protection You will be held accountable for the debts your business incurs. Filing a fictitious business name doesn’t give you a legal right over that particular name. |
| Detail | Read Review | Read Review |
Considerations For Your Business
DBA or LLC? We have to recognize the fact that your pick will depend on your business needs. However, just to offer you a general guide, you may pick a DBA over an LLC if:
- You want the simplest and the cheapest way to operate your business under a different name from your legal business entity.
- How can you quickly and easily set up a business account and conduct transactions in the name of your company instead of using a private one?
- You want the easiest way to expand your existing business area but don’t want to be represented by your legal name.
- You want your prospective clients to award you a job.
On the other hand, you need to create an LLC if:
- You don’t want to be held accountable for the liabilities and debts of the business.
- As a result, you’d like to relieve yourself of the worries of losing your personal assets and facing lawsuits.
- You want your business to look more professional, trustworthy, and legitimate
- You want to get more customers, more suppliers, and more lenders
However, it is worth noting that an LLC offers most of the services you will get from a DBA but it is more expensive. For instance, for you to operate under different business names with an LLC, you will have to form an LLC for every business you start.
With that being clarified, it is now clear that an LLC is a legal business structure with the protection benefits of a corporation, the efficiencies of a partnership, and the flexibility of a sole proprietorship. On the other hand, a DBA lacks one of the most crucial aspects every business owner craves, limited liability protection. Given the added benefits of an LLC, limited liability company formation is the best option.
Conclusion
Hopefully, our DBA vs LLC comparison has made things a lot easier for many business owners or those who are planning to start businesses. The big question is, which one would be a better fit for your business needs: LLC or DBA?
For business owners who have been exploring DBA vs LLC tax advantage, or those seeking personal liability protection, you will have to form an LLC. Consequently, for business owners who are just interested in registering different names, or opening bank accounts for each of their new businesses, a DBA allows that at a lower cost.
Your call… Please feel free to share with us your experience in the comment section below.
Frequently Asked Questions (FAQs)
The main difference between LLC Inc. and DBA is liability protection. Under DBA, your personal and business assets are not separate legal entities and don’t enjoy liability protection. On the other hand, LLC is a separate legal entity and therefore, guarantees personal liability protection which makes it the best.
Any type of business structure can get a DBA. If you want to use a different name from the name you provided on your paperwork when you were registering an LLC you must register a DBA.
An LLC owner can choose to be taxed as a C-Corporation or an S-Corporation so as to receive special tax treatment that may save you a lot. On the other hand, a DBA does not provide any tax benefits. That is to say, a business owner will be taxed the same way he used to be taxed before he files for a DBA.
Turning your DBA into an LLC is very simple and necessary if you want to separate your business and personal assets. You can have an attorney handle the paperwork for you, or seek the help of online filing companies, or just do it yourself.
Converting your DBA to an LLC enables you to separate your personal assets from your business assets. For that reason, you get to enjoy LLC liability protection.
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- Irs.gov. (2017). Limited Liability Company (LLC) | Internal Revenue Service. [online] Available at: https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc
- DOL. (2023). DBA Information. [online] Available at: https://www.dol.gov/agencies/owcp/dlhwc/ExplainingDBA.