Benefits of an LLC
Perhaps the easiest way to answer whether a DBA or LLC is best for your business is to look at the benefits an LLC offers.
- An LLC is a separate legal entity.
- The name of an LLC is the legal name and used when conducting business.
- An LLC is provided personal liability protection.
An LLC is often preferred when liability is a possibility or employees will be hired. The protection given is much higher with an LLC. Expansion and selling a business is also easier with an LLC as well as seeking funding.
Benefits of DBA
DBA is not going to provide any of the benefits seen in an LLC. In fact, a DBA will:
- Not be a separate legal entity
- Leave liability with the individual who registered the DBA
DBA is often beneficial when you are doing business under an assumed name. For instance, if you are a website owner that offers freelance services, a DBA will allow you to legally do business under your domain name. This allows you to have the right to use this fictitious name to conduct business legally.
One of the major benefits to a DBA is that once you function under the assumed name, you can incorporate under your DBA—with that same name—if you wish.
Major Distinctions Between DBA vs. LLC
Financially, there is a much lower cost for doing business as a DBA vs. LLC. A DBA has only two fees: a registration fee and a renewal fee, which is generally necessary every five years, depending on the state. However, an LLC, in most cases, requires the payment of state taxes, which makes it much more costly. These taxes are often a flat fee.
A sole proprietor that does not want to incorporate will often choose a DBA so that they can brand their name and promote themselves but not have to deal with the requirements of an LLC. Bylaws, agreements, and other formalities that a corporation may face will not be seen with a DBA. The downfall is that liability protection is not present, which is the biggest concern when choosing a DBA vs. LLC.
What’s right for your business will depend fully on your business and the operations conducted. Sole proprietors or freelancers often choose a DBA so that they have less legal formalities to follow. Partnerships may also choose a DBA.
Before deciding on a DBA or LLC, it is best to speak with a lawyer about your specific business and its operations.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.