What exactly is an LLC?

A limited liability company, sometimes known as an LLC, is a legal entity that is founded by the state. A limited liability company (LLC) is a distinct entity from its owners, who are referred to as members. On the other hand, members do not individually assume responsibility for the debts and obligations of the firm. Instead, the responsibility falls on the LLC.

What is a DBA?

DBA means “doing business as.” A DBA is any registered name that a business operates under that isn’t its legal business name. A DBA is sometimes called a trade name, fictitious name, or assumed name. DBAs can be used by sole proprietorships, partnerships, the self employed, LLCs, and corporations.

LLC vs. DBA

The biggest difference between a DBA and those looking to start an LLC is liability protection. A DBA isn’t a company structure and doesn’t provide any personal asset protection such as an LLC or corporation.

Under a DBA, there is no distinction between the business owner and the business. The business owner is liable for all expenses incurred on behalf of the business. On the other hand, an LLC provides limited liability protection.

There are mainly two reasons why you would need a DBA:

• You have a registered formal business entity looking to branch out into new products, services or brands, or to rebrand in general.
• You have an unregistered business such as sole proprietorships or partnership and would like to operate under a name other than your personal name. This option should only be used by businesses with very low profit and risk.

LLC vs. DBA differences

The following is a comparison of the key differences:

	LLC	DBA
Personal liability	Not liable for business debts and liabilities	Personally liable for business debts
Brand name	Yes	Yes
Mixing business funds and personal finances	Not permitted	Permitted
Taxation	Profits taxed once via pass-through taxation on the owner’s personal returns	Profits taxed once via pass-through taxation. No option to file as a corp
Fees	Pay an initial filing fee from $50-$500.	No costs. To register a DBA can range from $10-$120

LLC vs. DBA setup

The procedure of establishing your DBA is substantially simpler than that of forming your LLC. You invest a one-off charge and are not obliged to complete any paperwork or meet any yearly reporting obligations.

Typically, establishing a DBA doesn’t grant your business sole rights for using your brand names. Starting an LLC provides you with additional security since it prevents another company organization from being formed in the state using the same corporate name as yours.

However, neither provides the same amount of protection as a nationally registered trademark.

LLC vs. DBA taxation

Also, changing to a DBA will not affect the amount of taxes your business must pay. It is still your responsibility to file tax returns as a single proprietor if you choose to operate under a DBA.

A firm that has one owner may continue to pay taxes as a sole proprietor, whereas a business with several owners can continue to pay taxes as a partnership or corporation.

As an LLC owner, you may decide whether your business will be treated as just a C corp or S corp for tax purposes. In certain cases, a company’s tax bill might be reduced. Unlike forming a DBA, which is a very simple process, establishing an LLC requires additional paperwork.

A limited liability company (LLC) is a type of business entity that can be formed for a variety of reasons, the most common of which are the desire for limited liability protection, the need to protect the personal assets of the business’s owners, and the desire to take advantage of various tax benefits provided by state and federal governments.

Benefits of a DBA

A DBA can accomplish several things for a business owner.

• Rebranding a company: A DBA is an excellent way for your organization to alter the firm’s direction, including rebranding itself without forming a new corporation
• Distinguish between multiple companies: A DBA also comes in handy for entrepreneurs who want to distinguish among their numerous businesses.
• Build a brand: If you’re a sole proprietor, registering a DBA gives you the chance to build a brand under a name you choose instead of using your personal name. This helps you reach target customers and gets your brand out there in a way that benefits your business.

Business name registration

State regulation of LLCs include required words which must be included in an LLC name i.e. “LLC” or “limited liability company” might be required at the end of an LLC’s name. Registering your LLC does give your name protection within your state.

If the business owner plans on operating under a company name, instead of under their own name, they will need to register for a “fictitious business name,” or DBA (“doing business as”), in their home state.

Tax Implications for DBAs vs LLCs

By default, all profits made by an LLC are only taxed once. This is known as pass-through taxation. As the owner, the tax liability belongs to you and passes through your individual tax returns.

To file taxes, you report your operating results, including profit or loss, by submitting Profit or Loss From Business (Sole Proprietorship) (Form 1040, Schedule C) with your personal 1040 tax return. An LLC is very flexible and can get taxed as sole proprietorships, a partnership, or a corporation.

DBA’s don’t have to file separate taxes – taxes for money generated through a DBA will be included as a part of the business return. However, the frequency of taxes are filed depends on the way the business is structured. A sole proprietorship files taxes annually unless the business makes no income all year.

It can be easier for DBA’s to keep its business and personal affairs separate if you obtain an Employee Identification Number (EIN). But keep in mind that whether or not a business has a DBA, the IRS does not require a sole proprietorship to obtain an EIN. 

You can use your Social Security number