The allure of being a small business owner is that it comes with flexible hours, unlimited potential for earnings, and other perks. As a new business owner, one of the most important questions you should ask yourself is “should I operate as a DBA or LLC?” The answer simply depends on how you plan to conduct business.
Before you decide between an LLC or DBA, it’s important to inspect both options. By taking this approach, you can understand the most relative importances of an LLC compared to a DBA. Keep reading and it will all come clear to you in just a few minutes!
What Kind Of Business Is An LLC?
A Limited Liability Company (LLC) is a business type that operates as a separate legal entity from its owner. An LLC must have members or a manager. Members are considered the owners of the business, while a manager may or may not be a member.
If you begin an LLC, you must conduct business under the legal name that you choose to register under. Depending on the state you live, you’ll need to perform a name check before choosing a name to avoid selecting a duplicate of an existing LLC.
Since an LLC structures as a separate legal entity, it will protect your business assets. Under an LLC, you won’t be the only individual responsible for losses or fraud that your business could experience. It’s important to note that it will hold all LLC members jointly accountable.
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What Kind Of Business Is a DBA?
The acronym DBA stands for “Doing Business As.” A DBA allows a business to operate under a different name than its legal name.
Although a DBA doesn’t form a legal business entity, it gives the owner the right to carry the business under a different name than a personal name. At its core, a DBA is an official registration of a business name that is used to run the business legally.
With a DBA, the owner can legally change their name and business name with minimal formality. Since the owner isn’t bound by limited liability, the business assets won’t receive any protection. This means the owner would not be obligated to repay any losses they may face.
A DBA can also give an entrepreneur the opportunity to open a business bank account and collect payment in their business name. It eliminates the need to incorporate or form an LLC. If one decides to start a DBA, they can operate as a sole proprietor or an LLC.
What Are The Benefits of LLCs?
Here are the most talked about benefits of an LLC.
Liability Protection: An LLC can limit your liability as a business owner. For instance, if a customer sustains injury after using your product, an LLC can prevent them from going after you personally. With an LLC, you can also protect yourself from unpaid business debts (unless you personally guarantee them) and vendor disputes.
It Is Easy Set Up: In most states, you can complete the filing process online in just a few minutes. Once the filing is complete, you will need to visit the IRS website to apply for an Employer Identification Number (EIN).
No Member or Partner Restrictions: You can set up an LLC with yourself as the sole member or with as many members as you want to include. Remember that the more members you include, the more difficult administration becomes.
Tax Flexibility: As an LLC, you will be able to use the option to decide whether you want to be taxed as a sole proprietorship, partnership, S corporation, or corporation.
Continuous Existence: Upon opening, an LLC can continue to exist even after you sell your shares or pass away, just as a corporation does.
Investor Participation: Your LLC members can be investors and have minimal to no say in the daily business operations. If this option is chosen, then the intent must be clearly outlined in your operating agreement.
What Are The Benefits of DBAs?
DBAs come with several powerful advantages. Here are the most important ones to understand.
Privacy Protection: If you’re a sole proprietor or a part of a partnership, a DBA can help protect your privacy.
Easy Branding: As a DBA, it is far easier to brand for various target markets. This is important if you have different lines of business. Imagine you sell pottery online. If you are a DBA, then it would allow you to create different brand names and websites for vases, bowls, and cups.
Business Bank Account: A DBA allows you to keep your personal assets separate from your business finances. If you have a DBA, you can open a business bank account. This won’t be the case if you function as a sole proprietor or as a part of a partnership.
Simple Filing: Implementing a DBA is really pretty straightforward. While requirements vary from state to state, you’ll likely be able to file one in minimal time.
What Are Some Notable Distinctions of a DBA vs LLC?
There are many DBA vs. LLC distinctions that are important to learn and understand. First, a DBA isn’t a separate legal entity. An LLC, however, is a sole legal entity that exists separately from its owner.
If you opt for an LLC, you’ll need to use it on any paperwork that requires your legal identification, such as business permits and tax returns. Because of this, there are different requirements for forming an LLC vs a DBA.
Also, it’s important to keep in mind that it’s less expensive to register a DBA than an LLC. If you’re a sole proprietor who doesn’t want to pay LLC fees and meet certain legal procedures, a DBA may be the better option. With a DBA, you can still promote your business, but keep in mind the major downfall is that you won’t receive any liability protection.
Another point that needs to be known is that many businesses are an LLC which have a DBA. Often, a single business may have multiple DBAs. Just know that you don’t need an LLC to have a DBA. It is a rule that any type of business structure has the freedom to apply for a DBA.
How Would I Form An LLC?
Choose Your State: Form your LLC in the state you live and plan to run your business in. If your business has a physical presence in over one state, you must register a foreign LLC in every state it operates in.
Name Your LLC: Naming rules vary from state to state, but your name must include “LLC” or the phrase “Limited Liability Company.” Also, it can’t include any words like the FBI or State Department that may confuse your business with a government entity.
Select a Registered Agent: The individual or business that sends and receives legal documents for you is known as a registered agent. You can appoint yourself or your business to be its own registered agent, depending on where you live.
File Your LLC: To file your LLC, you’ll have to complete a document called the Articles of Organization, Certificate of Formation, or Certificate of Organization. You’ll do this with the Secretary of State’s office in the state you operate in. Fortunately, most states allow you to do this online.
Receive an EIN: If you have an LLC, you can choose an EIN as a social security number. You’ll need it to open a business bank account and hire employees. To get an EIN, visit the IRS website and complete the online application.
How Would I Go About Registering My DBA?
Understand Your State’s Requirements: Usually, a DBA is filed with a local or county agency. Contact your Secretary of State or County Clerk to determine what’s required to register a DBA in your specific area.
Choose Your Name: Brainstorm a few name ideas and check with your state or county’s records to make sure your top name hasn’t already been taken.
Complete the Necessary Forms: Once you understand the DBA requirements in your area and choose a name, complete the required forms. Most states and counties have the forms available online so you can easily download and fill them out.
File Forms: After your forms are completed, you’ll need to file them with the right state or county agency. During this time, you’ll pay a fee that can range from $10 to $100, depending on various factors. It may take anywhere from one to four weeks to receive approval.
Publish Notice: Your state or county may ask you to publish your DBA with a local newspaper to create a public record of the filing.
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While DBAs and LLCs are similar in many ways, there are several differences between them to keep in mind as you proceed. Once you understand both options, you can start a business and select the ideal option.
Although it’s more costly to file an LLC than a DBA, the limited liability protection of the LLC may make it worthwhile. If you’re unsure of the best route at this time, speak to a small business attorney and other advisors in your industry. They can certainly put you in the right direction. Or, if you prefer, you can use our preferred option to learn even more and get started today if you so wish.
If you can it would be best to start an LLC and if you wanted to add a DBA later on you still have that option available. Simply click the green button START NOW above, and our preferred partner ZenBusiness will walk you through every step. You still have us to answer your questions also.
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