There is a wide choice of different business structures that you can choose from, and it can be tough to decide which one is right for you. If you’re trying to decide whether to get a DBA or LLC, you must understand how LLC differs from DBA.
For starters, an LLC, or limited liability company, is a legal structure that protects your personal assets if your business is sued. That means if your LLC is sued, your personal assets like your car or home will not be at risk.
A DBA (doing business as) is a way to operate your business under a different name. You might choose to do this if you want to brand your business differently or if someone has already registered your business name. Remember that a DBA does not offer the same legal protection as an LLC, so if your business is sued, your personal assets could be at risk.
Advantages of DBA and LLC
Let’s look at the individual advantages of DBA and LLC to help you make an informed choice.
Advantages of DBA
- DBA protects your personal assets – If your business is sued, the only thing at risk is the business itself and not your personal assets like your house or car. That is one of the most significant advantages of DBA.
- DBA can make your business look more professional – If you’re starting, using a DBA can make your business look more established and professional. That can give you a leg up on the competition.
- DBA can save you money on taxes – If you have a sole proprietorship or LLC, you may be able to save money on your taxes by filing as a DBA. That can be a significant advantage, especially for small businesses.
Advantages of LLC
- Limited Liability – One of the most significant advantages of an LLC is that it offers limited liability protection to its owners. That is to say, the owners of an LLC do not carry liability for the debts of the business. That is a big advantage over other business structures, such as sole proprietorships and partnerships, where the owners carry the liability for the debts of the business.
- Flexibility – Another positive attribute of an LLC is that it avails more flexibility in comparison to other business structures. For example, you can organize an LLC as a partnership, limited liability partnership, or corporation. This flexibility allows LLCs to adapt to the changing needs of their owners.
- Tax Benefits – Another advantage of an LLC is that it offers tax benefits. For example, you can opt to have your LLC taxed as a corporation or partnership. This flexibility allows LLCs to save on taxes.
Disadvantages of DBA and LLC
By understanding the individual disadvantages of DBA and LLC, you will be able to make a good choice between the two.
Disadvantages of DBA
- DBA structure of a business is not a legal entity.
- DBA does not offer any personal liability protection.
- DBA can be difficult to register and maintain in some states.
Disadvantages of LLC
- LLCs can be more expensive to form than other business entities.
- LLCs may be subject to self-employment taxes.
- LLCs may have difficulty raising capital.
Which Is the Most Suitable Between DBA and LLC?
Having the many business entities to choose from when starting a business, the two of the most popular options are LLCs and DBAs.
There are a few critical differences between LLCs and DBAs. For one, LLCs offer limited liability protection to their owners, while DBAs do not. If your LLC is sued, the court can only go after your business assets, not your personal ones. That is not the case with a DBA, where your personal assets are at risk if your business is sued.
Another key difference is that LLCs are taxed as pass-through entities, meaning the business is not taxed. Instead, the owners are taxed on their share of the profits. DBAs, on the other hand, are taxed as sole proprietorships, which means the business itself is taxed on its earnings.
So, which is the most suitable between LLCs and DBAs?
It depends on your specific business needs. An LLC is the way to go if you want personal liability protection. However, a DBA may be better if you’re looking for a simpler tax structure.
Ultimately, it’s up to you to decide which entity is best for your business.
Is It Possible to Turn DBA into LLC?
Many people who operate a business as a sole proprietor or under a DBA (doing business as) designation may wonder if it’s possible to convert their business to an LLC. The answer is yes, turning a DBA into an LLC is possible. However, you should be able to follow the specific steps you must take to do so.
All you need to do is familiarize yourself with the state regulations governing LLC registration.