As you’re starting a small business, one of the major decisions you’ll need to make is how you want to structure your company. Many entrepreneurs choose to register for a business entity, such as a limited liability company (LLC). Others stay sole proprietors and choose to file a “doing business as,” or DBA, distinction instead. However, DBAs can be used by any type of business.
There are reasons why you’d choose a DBA vs. LLC, and there’s no universal answer as to which is best for all businesses. We’ll go over the difference between a DBA vs. LLC, so you can make the right choice for your new business specifically.
What Is a DBA?
In the simplest terms, a DBA (or “doing business as”) is required for businesses operating under a different name than their legal name. Primarily, sole proprietorships and general partnerships use a DBA. These two types of business structures are required by law to file a DBA when they begin doing business; however, other business structures (including LLCs and corporations) can also file this paperwork to do business under a different name than the one with which they originally registered.
Importantly, for businesses that aren’t already established as a formal legal entity, DBAs do not automatically provide protection for the owner’s personal assets with limited liability (the way an LLC does). However, it does put distance between you as an individual versus you as a business, which means that if you’re sued, for example, your DBA may provide evidence that your personal assets are separate from your business assets.
A DBA also provides you with an employer identification number, or EIN, which enables you to open a business bank account—another important aspect of separating your personal and business finances and protecting your personal assets.
- Less paperwork to file
- Lower registration fees
- Less frequent renewal (think every five or 10 years instead of annually)
- Not a business entity
- No limited liability protection for personal assets
- More difficult to scale as a DBA
- Harder to obtain small business loans
- No options for how to file taxes
When to File a DBA
For sole proprietorships and general partnerships, you’ll want to file for a DBA when you begin doing business, and want to operate under a trade name rather than your own. (This happens to be a legal requirement.)
For LLCs or corporations, you’ll want to file a DBA if you’d like to change the name under which your business is operating or operate under multiple business names without creating a separate entity.
How to File for a DBA
Just like most registration in business, the process of filing for a DBA is contingent on the jurisdiction in which you operate. Check in with your state for their specific guidelines. If you’re lucky, you’ll be in a state in which you only have to head to your county clerk’s office, file minimal paperwork, and pay a small fee. In other instances, you might need to create a “public notice,” such as placing an ad in a local newspaper (this announces your trade name).
What Is an LLC?
In contrast to DBAs, LLCs are legal business entities. They offer limited liability protection for business owners, which means that personal assets are protected in case the business is sued or carries debt. LLCs have a specific tax structure, and owners of LLCs can choose whether they want the IRS to treat the business as a pass-through entity or corporation.
An LLC enables a business owner to get an EIN to get a business bank account, which is an important piece of making sure those limited liability protections kick in—otherwise it’s difficult to figure out where your personal assets end and your business assets begin.
- Establishes a separate legal entity
- Offers limited personal liability protection (as long as you separate business and personal finances)
- Automatically gives the business a name (separate from the owner’s name) to operate under
- Easier to expand with an LLC
- Easier to seek small business funding
- More expensive to initially form
- More paperwork to file
- Must be renewed
When to Form an LLC
You should form an LLC when you:
- Are looking to operate your business as a full-time venture
- Expect to scale your business in the future
- Want limited liability protection for your personal assets
- Want to make your business “official”
How to Form an LLC
The rules for forming an LLC are different in every state, so if you’re interested in establishing an LLC for your business, you’ll want to check in with your specific jurisdiction. With that in mind, there are a few common steps among most states:
- Choose a name for your LLC
- Designate a registered agent
- Obtain business permits
- File articles of organization
- Create an LLC operating agreement
- Maintain your LLC
- Renew your LLC per state requirements
DBA vs. LLC: Similarities and Differences
There are key similarities and differences between DBAs and LLCs, which are important to understand as you pick the right setup for your business.
DBA vs. LLC: Similarities
The core similarity between DBAs and LLCs is that both afford an individual to do business under a specific name. So, Jane Smith doesn’t have to do business as “Jane Smith”—with both a DBA and an LLC, she can conduct business as “Jane’s Famous Cupcakes.” Similarly, she can register her small business bank account with the business’s name instead of her own.
DBA vs. LLC: Differences
The major difference between DBAs and LLCs is that a DBA is not a business entity, whereas an LLC is. This is important not only for tax implications but also for the limited liability protection that an LLC affords.
With a DBA only, there’s no line between the business owner and the business, which means that, in the case of outstanding debts or legal action, the business owner is personally liable. In contrast, an LLC protects a business owner’s personal assets, since the business entity forms a hard line between personal finances and business finances.
When to Use a DBA vs. LLC
You should file a DBA when:
- You’re in nascent stages of your business
- You operate a sole proprietorship or general partnership
- You don’t want to go through the process of establishing an LLC
- You want the least expensive option to begin doing business
- You’re an LLC or corporation that wants to do business under a name that’s different than the one with which you registered originally
You should establish an LLC if:
- You want limited liability protection for your personal assets
- You expect to scale your business or hire staff
- You want the option to file taxes as a pass-through entity or a corporation
- You expect to seek small business funding or investment
- You’re looking to operate your business as a full-time venture
- You want to make your business “official”
Remember, you can always turn your sole proprietorship or partnership into an LLC later on, and you can always file a DBA as an LLC later on, too.
The Bottom Line
Ultimately, it’s up to you as to whether you’re going to start an LLC, or simply operate under a DBA. You might want to seek the advice of your accountant or even a business lawyer to make sure that you’re making the right decision. Of course, if you choose a DBA, you can always form an LLC later—though it’s still worth looking into both options so you know exactly what each entails.