Whether you are starting a new company or expanding an existing business, you might be considering whether you should register your company as a 'doing business as' (DBA) or start a limited liability company (LLC). While both allow you to do business under your chosen name, it's essential to understand that an LLC is a business structure, and a DBA is a registered nickname for your already established business. Both can impact how you run your company, which is why we will take a look at the similarities and differences.
A DBA, also known as a fictitious name, assumed name, or trade name, allows you to operate your business under a name other than your legal name.
Sole proprietorships, partnerships, and LLCs are most likely to adopt a DBA. DBAs are also commonly used by franchise business owners. If you operate a sole proprietorship or partnership, you're required to use your legal personal name as the name of your business.
You can manage your business under a different name by registering a DBA with your local Secretary of State or another business licensing agency. As it is a nickname and not a business structure, a DBA does not provide the same legal protections as an LLC or any other business structure.
An LLC is a legal business structure that protects the owner's personal assets from the company's debts. An LLC is treated as a separate entity from the owner, which creates a financial barrier between the owner and the company.
Limited liability protection is one of the main reasons businesses choose to operate as an LLC. As an LLC, you conduct your business under the name of your LLC. Doing so requires establishing a separate business bank account and using your company name when interacting with clients or customers.
LLCs have the option to file for a DBA and use a trade name different from the company's name and the owner's personal name.
While the primary difference between a DBA and an LLC revolves around liability protection, that is not where the difference end.
Setting up a DBA is much more straightforward than an LLC. You pay an initial fee and are responsible for renewing the DBA per your state’s requirements. You are not required to file business formation paperwork or comply with annual reporting requirements. Opening an LLC is a more extensive process than filing a DBA. You will need to ensure you comply with all registration requirements, annual reporting, and renewals.
In addition, a DBA does not change the tax requirements of your company. If you register your sole proprietorship under a DBA, you'll be subject to the same tax filings you were before registering your DBA. Note that forming an LLC also will not necessarily change your business' tax status. A single-member LLC will be taxed as a sole proprietorship, and a multi-member LLC will be taxed as a partnership.
In terms of cost, a DBA is more cost-efficient than registering multiple LLCs. There is a registration fee and, depending on your state, a renewal fee. To establish an LLC, you can expect to pay a higher registration fee and recurring renewal fees.
DBAs can allow business owners to operate under a different name without the headache of legally changing the company's name. Additionally, many states require you to register a DBA if you'll be doing business under a name other than your name or your official business name.
A DBA is also a good solution if you already run a company, including an LLC. If you already run an LLC or other business entity and want to branch out of your current offerings, a DBA gives you that opportunity.
Whether you choose to file a DBA to alter your business' name publicly or you decide to open multiple LLCs, managing filings and renewals can take a toll. If you are looking to outsource your DBA filings, Harbor Compliance can help. With our Managed DBA services, you can expect:
With Harbor Compliance, you're partnering with a team of compliance specialists who understand your goals and can manage the regulatory tasks to get you there. Contact us today to learn more.Continue reading “Which Businesses Need a DBA”