Choosing the appropriate legal structure is one of the crucial choices you must make when starting a business. The terms “Doing Business As” (DBA) and “Limited Liability Company,” respectively, are two of the most popular company forms. The decision ultimately comes down to your business’s objectives and requirements because both forms have benefits and drawbacks. The advantages and disadvantages of DBA vs LLC will be covered in this post, along with some pertinent questions. What is a DBA, exactly?
A DBA is a legal registration of a business name that is distinct from the owner’s given name or the registered name of the firm. It is sometimes referred to as a fictitious name, trade name, or assumed name. A DBA enables a partnership or solo owner to conduct business under a different name without establishing a different legal entity. For instance, if John Smith wishes to run a company under the name “John’s Landscaping,” he can file a DBA with the state and use that name for business purposes.
An LLC is a distinct legal entity that offers its owners limited liability protection. It is a hybrid business structure that combines partnership tax advantages with corporation liability protection. One or more people own an LLC, but they are not personally responsible for the debts or liabilities of the business. Cons and Advantages of DBA vs. LLC
– Simple and affordable setup: It’s easy to register a DBA, and you can do it online or with the state. The renewal procedure is simple, and the expenses are typically inexpensive.
– Adaptability: Using a DBA enables a business owner to brand their company using a distinctive name without setting up a separate legal entity. This can be helpful for independent contractors, consultants, or small firms who want to utilize a different name for their operations.
– Simplified taxes: A DBA does not have a separate tax identification number, and the owner declares business revenue and expenditures on their own tax return. Cons of a DBA include the following:
– No liability protection: A DBA does not offer the owner any liability protection. The owner is liable for paying any debts incurred by the company if it is sued or goes into debt.
– Limited room for growth: A DBA makes it more difficult to raise money or draw in investors. Additionally, it could restrict one’s capacity to sign contracts or leases.
– Limited name protection: A DBA does not grant the business name exclusive rights. Another company may register under the same name in the same state, which could lead to confusion and even legal problems. Advantages of an LLC include: – Liability protection: An LLC offers its owners a certain amount of liability protection. This indicates that owners are not personally liable for the company’s debts or contractual commitments. An LLC has the option of being taxed as a partnership, sole proprietorship, S corporation, or C corporation. This gives tax planning flexibility and could lead to lower taxes. An LLC gives customers and clients a more credible and professional impression. Additionally, it enables a company to grow and draw in investors. Cons of LLC:
– Expensive and complicated: Formalizing an LLC involves more costs and fees than establishing a DBA. Additionally, it necessitates submitting annual reports and according to state laws. Double taxation is a possibility if an LLC is taxed as a C company because of its profits. Limited availability of names: An LLC must select a distinctive name that is not already listed as registered in the state. This can make it more difficult to utilize a preferred name. What do you refer to someone with a DBA as? A DBA holder is referred to as a lone proprietor. They are the company’s owner and operator and are in charge of every area of the enterprise. How much time does it take to obtain a DBA?
What drawbacks does a DBA have? No liability protection, restricted expansion possibilities, and restricted name protection are some of a DBA’s drawbacks. Additionally, it can not present a professional image to clients and customers.
No DBA has its own tax identification number. Schedule C is used by the owner to disclose business revenue and expenses on their personal tax return. On the revenue from the firm, the proprietor might additionally have to pay self-employment taxes.