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DBA vs LLC: How Should You Register Your Small Business?
October 20, 2021

DBA vs LLC: How Should You Register Your Small Business?

Being a small business owner comes with flexible hours, unlimited earning potential, and other notable perks. One of the most important questions you should ask yourself as a new business owner is “should I pursue a DBA or LLC?” The answer depends on how you plan to conduct business.

Before you decide between an LLC or DBA, it’s important to familiarize yourself with both options. This way, you can understand the most notable LLC vs. DBA pros and cons, which we’ll detail in this post.

What Is An LLC?

A Limited Liability Company (LLC) is a business that operates as a separate legal entity from its owner. When you start an LLC, there must be members or a manager. Members are considered the business owners, while a manager may or may not be a member.

If you open an LLC, you must conduct business under the legal name that you register under. Depending on the state you live in, you’ll likely have to perform a name check before choosing a name to avoid selecting the same name as an existing LLC.

Since an LLC is a separate legal entity, it’ll protect your business assets. Under an LLC, you won’t be the only one responsible for any losses or fraud your business experiences. Instead, all LLC members will be held jointly accountable.

What Is A DBA?

DBA is an acronym for “Doing Business As;” it allows a business to operate under a different name than its legal name.

Although a DBA doesn’t form a legal business entity, it gives you the right to carry your business under a different name than your personal name. At its core, a DBA is an official registration of your business name that you can use to run your business.

With a DBA, you can legally change your name and business with minimal formality. Since you aren’t bound by limited liability, your business assets won’t receive any protection. This means you’ll be obligated to repay any losses you face.

A DBA can also give you the opportunity to open a business bank account and collect payment in your business name. It eliminates the need to incorporate or form an LLC. If you start a DBA, you can operate as a sole proprietor or an LLC.

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The Benefits of LLCs

The most noteworthy benefits of an LLC include:

  • Liability Protection: An LLC can limit your liability as a business owner. For instance, if a customer sustains injury after using your product, an LLC can prevent them from going after you personally. With an LLC, you can also protect yourself from unpaid business debts (unless you personally guarantee them) and vendor disputes.
  • Easy Set Up: In most states, you can complete the filing process online in just a few minutes. Once you do, you’ll need to visit the IRS website to apply for an Employer Identification Number (EIN).
  • No Member or Partner Restrictions: You can set up an LLC with yourself as the sole member or with as many members as you’d like. Just remember that the more members you have, the more difficult administration becomes.
  • Tax Flexibility: As an LLC, you’ll have the option to decide whether you want to be taxed as a sole proprietorship, partnership, S corporation, or corporation.
  • Continuous Existence: If you open an LLC, it can continue to exist even after you sell your shares or pass away, just like a corporation.
  • Investor Participation: Your LLC members can be investors and have minimal to no say in the daily business operations. The only caveat is that this must be clearly outlined in your operating agreement.

The Benefits of DBAs

DBAs come with several key advantages such as:

  • Privacy Protection: If you’re a sole proprietor or a part of a partnership, a DBA can help protect your privacy.
  • Easy Branding: As a DBA, you’ll find it far easier to brand for various target markets. This is particularly important if you have different lines of business. Let’s say you sell jewelry online, a DBA would allow you to create different brand names and websites for necklaces, bracelets, and earrings.
  • Business Bank Account: A DBA allows you to keep your personal assets separate from your business finances. If you have a DBA, you’ll be allowed to open a business bank account. This won’t be the case if you function as a sole proprietor or a part of a partnership.
  • Simple Filing: The process of implementing a DBA is straightforward. While requirements vary from state to state, you’ll likely be able to file one in no time.

DBA vs LLC Distinctions

There are numerous DBA vs LLC distinctions that are vital to understand. First and foremost, a DBA isn’t a separate legal entity. An LLC, however, is a sole legal entity that exists separately from its owner.

If you opt for an LLC, you’ll need to use it on any paperwork that requires your legal identification, such as tax returns and business permits. For this reason, there are different requirements for forming an LLC vs. DBA.

Also, it’s important to note that it’s less expensive to register a DBA than an LLC. If you’re a sole proprietor who doesn’t want to pay LLC fees and meet certain legal procedures, a DBA may be the better option. With a DBA, you can still promote your business. The only major downfall is that you won’t receive any liability protection.

It’s important to note that many businesses are an LLC and have a DBA. Often, a single business may have multiple DBAs. However, you don’t need an LLC to have a DBA as any type of business structure has the freedom to apply for a DBA.

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How to Form An LLC:

To form an LLC, follow these steps.

  • Choose Your State: You should form your LLC in the state you reside and plan to run your business in. If your business has a physical presence in more than one state, you must register a foreign LLC in every state it operates in.
  • Name Your LLC: Naming rules vary from state to state but generally, your name must include “LLC” or the phrase “Limited Liability Company.” Also, it can’t include any words like FBI or State Department that may confuse your business with a government entity.
  • Select a Registered Agent: The individual or business that sends and receives legal documents for you is known as a registered agent. You can appoint yourself or your business to be its own registered agent, depending on where you live.
  • File Your LLC: To file your LLC, you’ll have to complete a document called the Articles of Organization, Certificate of Formation, or Certificate of Organization. You’ll do this with the Secretary of State’s office in the state you operate in. Fortunately, most states allow you to do this online.
  • Receive an EIN: If you have an LLC, you can choose an EIN as a social security number. You’ll need it to open a business bank account and hire employees. To obtain an EIN, visit the IRS website and complete the online application.

How to Register A DBA:

Here’s what you’ll need to do to register a DBA:

  • Understand Your State’s Requirements:  Usually, a DBA is filed with a local or county agency. Contact your Secretary of State or County Clerk to determine what’s required to register a DBA in your specific area.
  • Choose Your Name: Brainstorm a few name ideas and check with your state or county’s records to make sure your top name hasn’t already been taken.
  • Complete the Necessary Forms: Once you understand the DBA requirements in your area and choose a name, complete the required forms. Most states and counties have the forms available online so you can easily download and fill them out.
  • File Forms: After your forms are completed, you’ll need to file them with the right state or county agency. During this time, you’ll pay a fee that can range from $10 to $100, depending on various factors. It may take anywhere from one to four weeks to receive approval.
  • Publish Notice: Your state or county may ask you to publish your DBA with a local newspaper to create a public record of the filing.

Conclusion

While DBAs and LLCs have similarities, there are several notable differences between them. Once you understand both options, you can start a business and select the ideal option.

Although it’s more costly to file an LLC than a DBA, the limited liability protection may make it worthwhile. If you’re unsure of the best route to take, speak to a small business attorney and others in your industry. They can steer you in the right direction.

Editor’s Note: This post was updated for accuracy and comprehensiveness in October 2021.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].