When it comes to the brave new world of business registration, terms such as LLC, sole proprietor, and doing business as (or DBA) pop up a lot. But what do they mean for your operations? Let’s decode together.
An LLC is a separate legal entity that may or may not have a DBA business name. A DBA, however, is not a separate legal entity (unless also registered as one). Instead, this “title” gives the company a right to operate under another name than the one listed on company registration documents.
In this post, we provide a detailed comparison of DBA vs. LLC for you to learn which can best suit your needs.
Table of contents
- What is DBA (doing business as)?
- What is a limited liability company (LLC)?
- DBA vs. LLC: Key differences explained
- Conclusion: Should I get a DBA or LLC?
- FAQs about DBA vs. LLC
What is DBA (doing business as)?
Doing business as (DBA), also known by other monikers such as trade name, fictitious business name, assumed business name, is the name you operate under as an LLC, sole proprietor, or another type of business entity.
For example, your name is Joanne Smith. But your business name is “Jo-Jos Baked Goods” — this is how your customers know you. DBA helps you establish a link between your business entity and the name you use to do business.
Benefits of DBA
A DBA is a legal form of claiming your business name for compliance purposes.
State authorities require business owners to inform customers on who is behind the business.
Thus many sole proprietors choose to file a “doing business as” application to indicate this connection.
LLCs can also apply for a DBA in some cases. For example, when they have multiple business or product lines. Cool LLC can trade confectionery under the “Cool Sweets” business name and provide on-demand grocery delivery services under the “Rapid-Cool Delivery” name.
To avoid any legal issues, the owner will want to file a fictitious name application with the state to indicate ownership of these trade names.
Here are some more benefits of using DBA:
- Provides privacy for the business owners
- It prevents others from using a similar name
- Provides a business name with a clear brand image
- It makes it easier to obtain a business bank account
- A simpler alternative to incorporation
What is a limited liability company (LLC)?
A limited liability company (LLC) is a type of business structure you can choose to establish as a business owner to reduce personal liabilities for your work actions.
Formed under state laws, an LLC is a simple form of incorporation, appealing to both solo business owners and multi-owned companies.
When it makes sense to form an LLC
An LLC makes sense to choose as a business entity when you:
- Want to protect personal assets
- Plan to raise more capital
- Have a business partner or several business owners
- Seek personal liability protection for the LLC members
- Want a separate legal entity from the business owners (or LLC members)
- Are seeking a more professional appearance, compared to unregistered business entities
- Plan to grow into a larger business entity
DBA vs. LLC: Key differences explained
The main difference between an LLC and a DBA is that an LLC is a registered business entity, whereas a DBA is merely an application for claiming an operational name. Therefore, respectively, DBA offers no liability protection for your personal assets. In contrast, an LLC separates your corporate and personal liabilities so that a creditor or a plaintiff cannot go after your personal property.
Beyond that, there are other essential differences in terms of:
- Application process and costs
- Trademark protection
We discuss these in-depth in the following sections.
The filing process for forming an LLC depends on the state where an LLC is located. But, generally, business owners will need to file documents with the secretary of state (along with filing fees) and with the IRS.
How to register as an LLC
Requirements for registering an LLC vary based on the state where your LLC is located. So do the costs.
To register an LLC, you’ll need to file the following documents with a local secretary of state:
- Articles of organization (mandatory)
- Operating agreement (optional in most states)
- An LLC’s filing fees
Other steps include: selecting a business name, applying for necessary business permits or licenses, and appointing a registered agent.
Separately, you’ll need to apply for a federal enterprise identification number (EIN) with the IRS.
How to apply for a DBA
Filing a fiction name application (DBA) is much more straightforward:
- Check the business name availability
- Reserve the business name with your state (optional)
- Pay applicable fees to that state to register the selected trade name
- Check if you need to register the DBA for your small business, which is sometimes required by local rules
Make sure you also comply with any other local requirements, as these differ from state to state.
For example, Ohio has a clear list of requirements regarding what makes a different business name, e.g., if someone already uses “June’s Lovely Bakery” trade name, you won’t be allowed to register “June’s Lovely Bakeries.”
LLC vs. DBA: filing costs
Generally, filing for a DBA costs a fee that will vary by state, city, and county level. For example, in Santa Rosa, California, the estimated filing fee for a DBA is $40, plus $9 for each additional business owner. But the state-wide registration fee for an LLC is $70. So, on top of initial filing costs, in California, your LLC would need to pay a biennial $20 annual report filing fee for an LLC and a minimum franchise tax of $800.
However, costs vary at the state level and sometimes, the county level or the city. Some locations, such as DC, also have DBA renewal fees. DC renewal fees for the DBA are due every two years. Other states have a more extended period before a DBA expires or renewal fees are due, such as five years with Florida. When in doubt, always check the rules of your business location.
Typically, a DBA offers no trademark protection in itself simply by registering it at the state level, unless you separately obtain a trademark for the name from the U.S. Patent and Trademark Office.
An LLC’s business name is a legal name for a business entity that can also obtain trademark protection with the U.S. Patent and Trademark Office (U.S. PTO).
Do I need to trademark my DBA?
Usually, you don’t need to trademark your DBA unless you want to apply for one at the state or federal level with the U.S. PTO. However, if a competing business attempts to use a similar-sounding name, causing confusion among customers, a trademark can be an excellent choice for legal protection.
Liability protection doesn’t depend on obtaining a different name, such as with a DBA, but on the business entity structure.
Obtaining a DBA doesn’t assume your business owners will have personal liability protection. It is a common misconception among business owners. If you operate as a sole proprietor with a DBA, you’re not a separate legal entity. Respectively, any business mishaps can result in being personally held accountable for your business debts or liabilities.
While LLCs may also choose to have another fictitious name, a DBA application will not change the scope of liability protection for the LLC members. However, LLC members cannot be held liable for the company’s wrongdoings under an LLC’s structure. That is the entire point of business incorporation.
An LLC costs more to operate annually compared to being registered as a sole proprietor with a DBA. Most states, except for Alabama, Arizona, Delaware, Missouri, New Mexico, Ohio, Pennsylvania, South Carolina, Texas, require LLC owners to file an annual report and pay respective fees. These range from $20 to $500. An annual report must be prepared and signed by all LLC members.
Some states require renewal fees for a DBA. For example, as previously mentioned, Florida requires a renewal fee of $50 every five years. Check with your state to determine how often a renewal filing and/or renewal fee is required to maintain your DBA.
Other fees to consider with maintenance costs
Also, expect filing fees for original registration filings and any renewal requirements for LLCs and obtaining or maintaining your DBA. The costs will vary as well at a state level and range from $40 to a few hundred or more for an LLC. For DBAs, initially obtaining one is usually cheaper, and the renewal fees tend not to be due as frequently or be as high as those for LLCs. But, again, since this depends on the state, business owners should check with the secretary of state office.
One good thing for new business owners is that whether you have an LLC, a DBA, or both, obtaining a DBA or operating your business structure as an LLC will not cause you to have complicated personal tax returns. Still, you must understand your tax obligations.
What are the tax benefits of a DBA?
Filing for a DBA will not provide any tax benefits on its own, apart from a possible tax deduction on your personal tax return for the filing fee.
How is DBA taxed?
A DBA is taxed based on the business structure for which the DBA business name is obtained. If you’re a sole proprietor with a DBA, you’ll have to file a personal tax return the same as you would if you did not use a DBA business name. You’ll also be responsible for income taxes and self-employment taxes.
With an LLC, the earnings pass through to each member’s (or business owner’s) personal tax returns.
Your LLC has more flexibility in structuring its tax treatment compared to a sole proprietorship, for example. However, the default is that an LLC is treated as a disregarded entity, and as such, the business entity itself is not taxed at the federal level. Instead, taxes are reported on the personal tax returns of the LLC member(s).
However, an LLC can elect to be taxed as a different business entity by filing a form with the IRS and meeting certain conditions. As such, your LLC can choose to be taxed as a Corporation, LLC, sole proprietorship, or S Corporation, so long as you meet the state and federal requirements for the type of business entity you choose.
LLCs may also use a DBA business name. But they too will not experience any tax implications from using a fictitious business name, trade name, or assumed name for their business entity’s DBA name. LLC members will also need to pay income tax on profits received and self-employment taxes in most situations.
What are the tax benefits of an LLC?
Suppose an LLC doesn’t opt to be taxed as a C-Corporation. In that case, the default taxation method allows LLCs to avoid double taxation that corporations have since the business entity is not taxed in addition to the business owners’ income. Additionally, the LLC members will only need to pay FICA (or medicare and social security tax) on employee incomes. Finally, if the LLC elects to be an S Corporation, the LLC members may benefit from the qualified business income (QBI) tax deduction.
How is LLC taxed?
Each member has to report income from the company on their personal tax returns. Apart from that, you can choose to file taxes as an S-corp or C-corp. However, this is a less common scenario.
The instructions for this election form are provided on the IRS.gov website.
What other factors should a business owner keep in mind when comparing an LLC vs. a DBA?
Whether you operate as a sole proprietorship using a DBA or an LLC, pay attention to the state requirements. Some states are more tax-friendly on income tax, corporate taxes, and franchise taxes. But this will vary by every state.
Conclusion: Should I get a DBA or LLC?
You can have both a DBA and an LLC. A DBA is an option for when you want to use a different business name or another name than your personal name if operating as a sole proprietorship or from the legal name of your business entity if operating as another form of business entity, which may include an LLC.
You don’t need to choose between one or the other. Instead, you should first determine what business structure is best for you and then if you need or want another business name or DBA to operate your business.
FAQs about DBA vs. LLC
These are some frequently asked questions regarding DBA vs. LLC.