You've worked hard to start a business, but now it's time to make some decisions. How you legally form your business, and the name you choose to operate under, may have long-term legal and financial implications for your company. So, to help you get started on the right foot, we've tackled one of the most commonly asked questions by young and first-time entrepreneurs — should I form an LLC or DBA for my small business?
If you are grappling with this or a similar question, the small business experts at Swyft Filings may be able to help. In this blog, we break down the differences between an LLC and DBA so that when it's time for you to make this important decision, you'll have all the facts.
What Is an LLC?
A limited liability company (LLC) is one of the most popular ways for small business owners to structure their company. This is because LLCs offer liability protection for owners, separating your company's assets from your personal finances in case of a lawsuit. It also may provide tax advantages for the owner because of the pass-through taxation options. After forming an LLC, your business will need to operate under the registered name of the LLC.
What Is a DBA?
DBA is an acronym for "doing business as." Most states require you to file a DBA if your business name is different from your personal legal name or the name of your LLC. In the United States, these assumed business names are required, in part, to help others know the real name of the business owner. They also help prevent dishonest business owners from repeatedly changing their business name to avoid legal trouble.
Benefits of an LLC
Forming an LLC has many benefits for the small business owner. This type of business entity helps limit owners' personal liability exposure and provides several tax benefits. Other key benefits of an LLC include:
- Easy to set up
- Pass-Through Taxation options
- Flexibility in owners and partnerships
- Ability to do profit distributions
- Option to accept investors
Benefits of a DBA
Conducting business under a DBA is an excellent way to brand your business or protect your anonymity as a small business owner. Other key benefits of a DBA include:
- Costs less compared to an LLC
- Added privacy protection
- Ability to set up a business bank account with a DBA name
- Versatility for marketing and branding
- Less paperwork to file
Similarities Between an LLC & DBA
An LLC and a DBA will each allow a business owner to operate under their registered business name instead of their own legal name. Both will also allow you to set up banking for your business under the company's name.
Differences Between an LLC & a DBA
The main difference between an LLC and a DBA is liability protection. If you are operating with just a DBA, you will have no legal protection in case of a lawsuit because, legally, there is no distinction between you and your business. On the other hand, forming an LLC offers limited liability protection, which will legally separate the company's assets and liabilities from your own.
There are also important tax implications depending on which you choose. LLCs offer owners the ability to take advantage of pass-through taxation and take profit distributions in addition to a reasonable salary, all of which may help owners lower their taxes.
Considerations for Your Small Business
Ultimately, what you decide to do for your small business will depend on many different factors. Below are some common considerations you may want to review before deciding.
Are you looking for the cheapest option?
Whether you choose a DBA or LLC, there will be some fees to consider. These costs vary by state, but generally, DBAs are less expensive to form and require fewer ongoing fees, such as renewal fees, filing fees, and taxes.
Do you want to keep your personal assets separate from your business?
If you want to keep your personal assets separate, then an LLC is your only option. DBA's will not protect you and your personal property in case of a lawsuit.
Do you want more ways to save on your taxes?
The popularity of forming an LLC is largely because of the tax benefits it offers. Owners can save big money each year with an LLC, and you can decide whether your business will be taxed as a sole proprietorship, partnership, S corporation, or corporation.
Do you have the time to spend filing paperwork?
Often an LLC will require more paperwork, as most states require annual filings. If you are a sole proprietorship looking to avoid any more forms, then a DBA may help save you time.
Will You Ever Need Both an LLC and DBA?
In some instances, it may be appropriate to use both simultaneously. An LLC operating multiple businesses or websites may use a DBA to conduct business. However, an LLC is not required to form a DBA.
Steps to Form an LLC
Before making your LLC official, there are a few steps you must follow, including:
- Choose your name
- Select a registered agent
- Fill out an LLC Operating Agreement
- File paperwork in the state where you do business
- Receive an EIN
- Obtain a Certificate from your state
Steps to Register for a DBA
DBA requirements may vary depending on the city, county, and state you operate in. Be sure to check with your local jurisdiction before registering. Steps to register for a DBA may include the following:
- Choose your name
- Fill out the necessary forms
- File your paperwork
- Publish a notice to create a public record of the filing
Save Time — Get Your LLC or DBA Online With Swyft Filings
No matter what you decide, Swyft Filings can help save you time and money on the process. Our easy online registration process for LLCs and DBAs has a fast turnaround time and is supported by our knowledgeable customer support team. Every one of our customers is assigned a personal Business Specialist, and you have their direct phone number and email to help answer your questions. Let us handle your business filings while you focus on growing your business.