Choosing between a limited liability company (LLC) and a doing business as (DBA) depends on the type of business and individual needs. A DBA is faster and has less regulation, but an LLC offers more asset protection. An LLC is a separate entity, while a DBA is just a legal name. An LLC offers more protection to personal assets and has tax advantages, but may be more expensive to start. A DBA can be filed with an LLC to have various names for the company.
There are various benefits and limitations of both a limited liability company (LLC) and a business arrangement (DBA), and your individual needs will vary based on the type of business you have. If you are a sole proprietorship or partnership, filing for a DBA may be a faster option with less compliance and regulation. However, an LLC offers additional protection for your assets, as it constitutes a separate entity.
When choosing whether to form an LLC or a DBA, there are various things to closely consider. To begin with, forming a DBA does not constitute a separate business or entity for yourself. It simply gives you a legal name that you can use to transact business. For example, if your name is John Smith and you start a sole proprietorship, you should automatically conduct transactions using your name. If you want to do business as “John’s Bike Shop” you need to present a DBA.
The DBA would not create a separate business; your income would still be filed in your personal and business tax returns and you would not be withheld separately. You would still be liable in the event of a lawsuit or other problem. This is one of the main factors many business owners consider when choosing to do an LLC or DBA, as an LLC offers some protection to business owners with regards to personal assets.
An LLC would be filed and named as a separate entity from the individual. Doing business as an LLC also prevents creditors and others from reclaiming personal assets to collect a debt. If you only have a DBA and your business fails, your personal assets, like your home or car, can be targeted for collection. If you have an LLC, you can only collect commercial property, while your personal assets remain secure.
When choosing whether to do an LLC or a DBA, you also need to consider the tax advantages offered to LLC companies in some areas. It also allows for greater freedom in hiring employees and having more than one owner running the business. That said, an LLC may also have more restrictions in some areas and may be more expensive to start initially. These added hurdles may not be necessary for those running a very small operation, such as a freelancer.
Also, you don’t always have to choose between doing an LLC or a DBA, since a DBA can also be filed with an LLC. You can file a trading name for your limited liability company, but then file a separate DBA to have various names for your company. This allows you to do business under another name besides your company name, or you can have a larger entity with various locations. For example, if you own a restaurant, you can choose a DBA for each individual restaurant so that they all have a separate name.
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