DBA vs. LLC: What's the Difference?
Small businesses make up a large part of the economy today, with over 627,000 new ones starting each year.
If you're starting a business, congratulations! Starting a new business is exciting, but it also requires some legwork and legalities.
One legality to consider is the type of business structure you want for your new venture. While there are many types to consider, many people opt for a DBA or LLC.
Before choosing one of these, you might want to compare a DBA vs. LLC to learn about the differences. Once you learn the differences, you'll be able to select the best option for your business.
The Basic Principles of a DBA
One of the simplest ways to create a business is using a DBA. DBA stands for "Doing Business As," and people use DBA structures for many purposes.
With a DBA, you do not create a separate entity or structure for your business. Instead, you choose a name for your business to operate under.
For example, assume there is a woman named Tina Smith that wants to start a business. Suppose she wants to call it, "Tina's Trade Supplies."
Instead of creating a separate business structure for this business, Tina could create a DBA in her name to operate the business as Tina's Trade Supplies.
In this case, Tina would do business as Tina's Trade Supplies, and she would not need a different business structure to achieve this goal.
When people pay Tina for her services, they can make their payments to Tina's Trade Supplies. She can open a checking account in her name, along with the words, "DBA Tina's Trade Supplies" and deposit the money in the account.
Setting up a DBA is simple, fast, and affordable. You can learn more about a DBA by looking at this blog.
The Basic Principles of an LLC
An LLC is another option for a new business, and LLC stands for "Limited Liability Company."
An LLC is a business structure, or entity, which means it is separate from you personally. When you set up an LLC, you are setting up a business structure that is completely detached from yourself.
People who consider LLCs often compare them to corporations or a DBA before selecting the best type for their business endeavors.
One key principle of an LLC is it is a separate entity. Another key principle of an LLC is the protection it gives you for your personal assets.
Setting up an LLC requires a little more work than using a DBA. For an LLC, you must file numerous forms and create a unique name that no other company uses in your state.
You must pay fees to the state to register the company, and you must complete many other steps.
While there is more work with starting an LLC, people often choose LLCs for the benefits they offer.
DBA vs. LLC: The Key Differences
Now that you understand the primary features of a DBA and LLC, you might want to compare them further. Here are the key differences you will find with a DBA vs. LLC:
Structure
The structure of a DBA vs. LLC is completely different. With a DBA, there is no additional structure. The owner of the business is the structure, even though the business operates under a different name.
An LLC lets you have an entirely different structure that is completely separate from you.
Liability
One of the most significant differences with a DBA and LLC is the liability protection each offers. Operating a business with a DBA doesn't provide you with any liability protection.
If a customer sues your DBA business for any reason and wins the case, that person could come after your personal assets and wealth. You have no protection for your personal belongings if using a DBA.
An LLC provides protection to you personally. If someone sued your business, they could not come after your personal wealth. People often choose LLCs for this protection.
Taxes
The other difference is the way taxes work with a DBA vs. LLC.
With a DBA, you keep your business income separate from your personal matters, but you are personally responsible for including your business income on your personal tax return.
An LLC is similar with taxes. The LLC does not file a tax return. Instead, you calculate how much money the LLC made for the year and pay taxes on your own return for the percentage of the profits you received.
Compare the Pros and Cons to Choose the Right Type
Finally, you should compare the pros and cons of DBA vs. LLC before selecting the type you will use for your business. Here are the main pros and cons of both options:
Pros and Cons of a DBA
You can reap several benefits by choosing a DBA for your new business. The first is that it's easy to start, and the second is that it is a cost-effective option. Another benefit is that you can easily change the name of your business if you ever want to.
The downside to a DBA is that it doesn't provide you with protection for your personal assets.
Pros and Cons of an LLC
With an LLC, you also reap pros and cons. The main advantage is the liability protection you receive by creating a separate entity for your business operations.
You will never have to worry about losing personal belongings for business problems.
The downside to an LLC, in comparison to a DBA, is that it is slightly harder to start. The other downside is that it might cost a little more than using a DBA.
File the Right Documents for Either Type
Now that you understand the differences between a DBA vs. LLC, you might know which is right for your new venture.
Once you decide, you can print the necessary forms for your state and file the paperwork. Check out our site or contact us for more information about a DBA and LLC.
