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DBA vs. LLC – Pros and Cons (Which is Better…)

When you are in your business start-up phase or considering to restructure an older one, one of the major questions that may most confuse you is what business structure you should use.

During this phase, most of the sole proprietors and partnerships are unable to decide whether they should register as a DBA or an LLC (Limited Liability Company). In other words, all it takes is having detailed information about LLC VS DBA.

Wondering what DBA stands for?

Well, it stands for “doing business as.”

While both options share a lot of common things, yet it is hard to figure out which one is best when it comes to choosing between DBA and LLC even if you know what does DBA stand for. Of course, you need to know about LLC VS DBA pros and cons to make the right decision.

LLC protects your assets from business debts and lawsuits. What this means is that if something happens to your business, then your assets, like your car, house, or savings account, won’t be at risk if your LLC faces a lawsuit or bankruptcy.

The first thing successful entrepreneurs do is form an LLC.

Email me at sam@mollaeilaw.com if you’d like to start an LLC.

Can’t get a lot of information about what is DBA, what does DBA mean, and something about LLC VS DBA?

Let’s get started with the difference between DBA vs LLC…

 

DBA vs LLC

LLC protects your assets from business debts and lawsuits. What this means is that if something happens to your business, then your assets, like your car, house, or savings account, won’t be at risk if your LLC faces a lawsuit or bankruptcy.

LLC’s also have simpler tax structures. Profits and losses can get passed through to your income without facing corporate taxes. LLC has “pass-through” taxation, which means their earnings just pass through to the personal income taxes of its members.

This means accountants don’t have to file a separate tax form for the company and file much simpler forms than for corporations, which also saves on costs.

LLCs can have a limited life in many states. When a member joins or leaves an LLC, some states may require the LLC to be dissolved and re-formed with new membership — unless there’s already an agreement in place within the LLC for buying, selling, and transferring ownership.

LLC is a great choice for medium or higher-risk businesses. Owners with significant personal assets want to be protected. Plus, owners may pay a lower tax rate than they would with a corporation.

I recommend LLCs for companies that expect to grow organically and not seek fundraising to scale. If you sell services (e-commerce, consulting, design, developers), I recommend you to form an LLC.

 

LLC VS DBA: What Does DBA Stand for and Why is DBA Bad?

In this section, you will learn what is DBA and a bit about its role. DBA stands for “doing business as” and this type of sole proprietorship is the simplest business type. It does not require any formal filings.

You’re automatically considered to be a sole proprietorship if you conduct business activities but don’t register as any other kind of business.

Speaking of LLC VS DBA pros and cons, it’s worth knowing that the huge disadvantage/con of DBA or Sole Proprietorship and the reason why you should NOT start your business as a sole proprietorship is that you will take personal liability for all business matters if your business structure is a sole proprietorship.

This means your business assets and liabilities are not separate from your assets and liabilities. You can be held personally liable for the debts and obligations of the business.

What this means is that if your business gets sued or if something happens to your business, you will be personally responsible for your business (which you don’t want to do).

While learning more about LLC VS DBA, you should know that DBA (sole proprietorship) can be a good choice for low-risk businesses and owners who want to test their business idea before forming a more formal business.

 

What Does DBA Mean?

Again, it’s important to answer the question, “What does DBA stand for?” and here is the simple answer: A DBA stands for “doing business as.” It is also known as an Assumed Business Name or Fictitious Business Name.

To help you understand LLC VS DBA and make a decision by choosing one of these business structures, let’s dig deeper and find out the characteristics of DBA:

  • A DBA doesn’t form a legal business entity, but it allows you to legally carry on your business under a name that differs from your personal name.
  • It is an official registration of your business name that you can use to operate your business.
  • A DBA allows you to legally change your name and your business name with little formality.
  • Under DBA, you are not bound by limited liability, thus no protection is given to your business assets.
  • When registered as DBA, you are solely liable to repay the loss your business causes.
  • However, when talking about DBA vs LLC pros and cons, you should also know that a business or company registered as DBA doesn’t enjoy limited liability like an LLC does.

DBA VS. LLC: Why to form a DBA?

There are many reasons why you should form a DBA, and they differ from one business type to the other.

You need to form a DBA if you want to use a business name instead of your name.

You need to register as DBA if you want to open your business account and make payments in the name of your business.

You need to have a DBA if you want your prospective client (s) to award you a job.

You should have a DBA if you want to expand your existing business areas, but don’t want that to be represented by your current business name. This is one of the pros of DBA when we talk about LLC VS DBA pros and cons.

You should file a DBA if you want your other businesses to operate with your existing ones.

Moreover, you will need to have a DBA if you register as an LLC, and want to do your business under a name other than the registered legal name.

Confused about DBA VS. LLC? Consult with your business lawyer if you are unable to choose the right business structure.

 

Importance of a DBA Reveals What is DBA

Registering as a DBA is important when you don’t want to operate your company with your real name.

  • A DBA is helpful when you want to use your nickname to represent your business.
  • Registered as a DBA, you can receive drafts, checks, and sign contracts as well.
  • When you don’t know whether to choose DBA or LLC, here’s an important fact: A DBA helps reduce your expenses and paperwork when you’re operating multiple projects.

 

DBA or LLC: What does an LLC stand for?

An LLC (Limited Liability Company) is a legal entity and comes with limited liability benefits of a corporation and the efficiencies and flexibility of a partnership.

  • An LLC is also known as a hybrid structure because it combines features of a corporation and a partnership together.
  • Since an LLC is a separate legal entity, it provides personal liability protection to your business assets.
  • It allows you to conduct your business only under the legal name you choose and register with LLC.
  • Most states require you to make a name availability check before creating your LLC.
  • Checking name availability is vital to avoid duplicity of two similar names.
  • You can use your registered LLC’s legal name in all forms of your business, from banking to handling customers and suppliers to filling up your details in government forms.
  • Under LLC, you aren’t solely held liable for any fraud or loss your business incurs.
  • Rather, all LLC’s members have held jointly accountable for any loss the business causes.

To know more why you should form an LLC, while choosing DBA or LLC, reach out to me at sam@mollaeilaw.com

DBA VS LLC: Why to form an LLC?

If you want to protect your assets from business liabilities and debts, then you must form an LLC.

Additionally:

  • You should form an LLC if you don’t want to be held accountable for the liabilities and debts of the businesses.
  • You need to have LLC if you don’t want to worry about the loss of your assets and avoid legal suits.
  • You need LLC if you want your business to look more professional, legitimate, and trustworthy.
  • Last but not the least; you must file an LLC if you want to get more suppliers, more lenders, and more customers.

Even if you don’t have any idea on how to set up an LLC, send me an email at sam@mollaeilaw.com and I’ll contact you soon.

Difference Between DBA & LLC

A DBA and an LLC share just a few similar qualities with each other; but there are lots of points where both stand apart.

 

Similarities between DBA & LLC

  • You can use DBA and LLC to name your business something other than your own legal name.
  • You can use both structures to do banking under your business’s name in place of your personal name.

 

Difference Between DBA and LLC

Let’s explore the differences between both as well as the LLC VS DBA pros and cons:

  • An LLC is formed as a separate legal company with its tax identification number. But a DBA is just a fictitious name under which you conduct your business as a company.
  • An LLC is like a person, but a DBA is an alias for that person.
  • An LLC protects your business from failures, but a DBA doesn’t.
  • You have to do a lot of paperwork to transfer your company from DBA to LLC. But you don’t have to do so with an LLC. Rather, it requires less paperwork.
  • If you register as a DBA, it won’t impact your liability. But under an LLC, your liability gets automatically protected.

Besides, an LLC consists of multiple DBAs for various product lines or for any reason they choose.

Plus, there is no automatic transfer of the DBA that you have under your name.

Whether you choose DBA or LLC, both DBA & LLC have their importance when it comes to starting a business.

But if you have a look at their benefits, you will be able to decide which one is the best business structure for you.

 

Benefits of LLC

The benefits of LLC are really great if you want to protect your business assets from liabilities.

  • You get personal liability protection for your business assets.
  • You can sell and expand your business without any hassle.
  • You get legal protection for your business name.
  • You can easily hire your employees.
  • It also helps you seek funding.
  • It is a separate legal entity.
  • It requires less paperwork
  • It has more flexibility

Finally, as I discussed above, you won’t be held personally accountable for business debts and judgments against the LLC.

 

What Are the Disadvantages of an LLC?

The major disadvantages of an LLC structure are taxes and limitations.

An LLC is taxable like partnerships and avoids federal income taxes. But it is not free from disadvantages as well.

Some key disadvantages of an LLC are as under:

  • It’s a little costlier to operate an LLC than a partnership or sole proprietorship.
  • To set up an LLC, you need to pay more than a sole proprietorship or partnership.
  • Your liability protection doesn’t protect you if your company does any fraud.
  • Under an LLC structure, you do have to pay fees and file paperwork.
  • Under an LLC, you’re subject to self-employment tax.
  • Its limited liability protection isn’t bullet-proof.

 

Benefits of DBA

Now that you know what does DBA mean, let’s go ahead with its benefits. One of the benefits of a DBA is that when you begin to use an assumed name, the same can be incorporated under your DBA.

If you are operating your business as a DBA, you can run your business under an assumed, fictitious name.

You can use this fictitious name or nickname to legally operate your business.

Only the registered individual with a DBA has to repay the loss.

While learning more about what does DBA means, it’s worth knowing that a DBA is not a separate legal entity.

 

What are the Disadvantages of a DBA?

One of the key disadvantages of a DBA is that you don’t get liability protection for your assets.

Knowing more about LLC VS DBA pros and cons is always beneficial for your business success as it may help you make an informed decision while finalizing a business structure. Since a DBA is operated as an assumed name, you don’t get any personal liability protection.

Therefore, there are just a few disadvantages of a DBA, let’s take a look at them below:

  • You will be held liable for all the debts your business incurs.
  • You don’t get any exclusive rights for your business name.

 

Pros and Cons of LLC

An LLC is a relatively new type of business structure that most states permit.

Where an LLC entity structure provides the limited liability characteristics of a corporation, it also provides operational flexibility and tax efficiencies of a partnership.

However, there are many pros and cons of an LLC that you must know if you are going to use LLC for your business.

So, if you want to know about DBA vs LLC pros and cons, given below are the pros and cons of an LLC business structure that you must know if you want to conduct your business as an LLC.

Pros of LLC

  • An LLC has great managerial and organizational flexibility. As its member, you can structure your organization as you want.
  • As a member of an LLC, your liability is confined to the personal investment in the company.
  • An LLC owner is free to choose how it should be taxed, including having pass-through taxation for its members, like partnerships.
  • An LLC doesn’t need to abide by the same strict corporate formalities, applicable to corporations.
  • There are no limitations on the membership of an LLC.
  • An LLC is also easy to manage by the members.
  • An LLC can have any number of members.

Cons of LLC

  • An LLC tends to have a very complex tax filing system, compared to other entities.
  • Liability and tax treatment of an LLC don’t have uniformity across all states.
  • An LLC cannot make use of modified-cash or cash basis accounting systems.
  • An LLC can place some restrictions on the transfer of ownership.
  • An LLC is required to have an accrual basis accounting method.
  • An LLC has pricey publication requirements and renewal fees.
  • An LLC doesn’t allow you to pay yourself wages.

Still not sure to decide on the right business structure for your business? Contact me at Sam@MollaeiLaw.com.

 

Pros and Cons of DBA

Pros of DBA

Now that you already know what does DBA stand for, there’s more to learn about this business structure, i.e. its pros. Since DBA works as an official registration of your business name, you can use it

  • to form individual brands, take, for example, Band-Aid or Xerox
  • to open a bank account under the name for business and financial purposes
  • to create a professional identity for your vendors and customers

Besides, with a DBA, you can also have multiple businesses under the same owner.

Cons of DBA

Just as an LLC has its disadvantages, a DBA too has its cons.

Let’s take a look at them below:

  • A wrong filing of DBA name may lead to fraud charges.
  • A DBA is neither copyright nor a trademark.
  • Anyone can copy it with slight alterations.
  • A DBA name is not protected.

Since a DBA is formed as a fictitious and assumed name, it doesn’t provide its owner(s) any personal liability protection.

Feel free to contact me at sam@MollaeiLaw.com if you still have any questions about a DBA or an LLC.

 

Conclusion

Now that you have read the entire article about DBA vs LLC, which one would you find a better fit for your business?

I know it won’t make things easier for you to decide between the two, especially when it involves the complexity of financial and legal matters.

If you’re looking to start an LLC, email me at sam@mollaeilaw.com

Sam Mollaei, Esq.

As a Business Lawyer for Entrepreneurs, I help entrepreneurs start their U.S. business without dealing with complicated government forms. I’ve assisted more than 2,246 entrepreneurs successfully start their business and I'm backed by more than 702 5-Star Google Reviews. If you're interested in starting your business, take the first step by requesting your Free Strategy Session on this page.

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