DBA vs. LLC: What’s the difference?

Whether you’re launching a new business, preparing to expand an existing organization or looking to rebrand, there are various legal considerations to take into account. This includes deciding how to register your company name. 

Two common methods involve forming an LLC (limited liability company) or filing for a DBA (doing business as). Each of these options has its benefits and drawbacks, so it’s important to understand how they can both affect the way a business conducts its operations before choosing. 

The following guide compares the similarities and differences between a DBA and an LLC to help you determine what’s best for your company.

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What is an LLC?

An LLC is a type of business structure that allows a company to operate independently of its owners. As a separate legal entity, an LLC may sign contracts and hold property on its own behalf. This helps maintain a strict distinction between the LLC’s business affairs and the owners’ personal affairs. 

In most states, starting an LLC involves filing an articles of organization and drafting an operating agreement. Business owners will also need to choose and register a name for the company. 

However, before doing so, they must search available names in the state where the LLC will be established to avoid selecting the same name as an existing company. Additionally, it’s required to include “limited liability company” or an abbreviated version at the end of the name. 

LLC pros

• Flexibility with taxation. 
• Liability protection for personal assets.
• Exclusive rights to brand name within the state. 
• No management restrictions.

LLC cons

• Less investor appeal. 
• Difficult to transfer ownership. 
• Self-employment taxes. 
• Filing fees.

What is a DBA?

A DBA is a legal nickname that businesses may use when they wish to operate under a different moniker than their official entity designation. This can also be referred to as a trade name, fictitious name or assumed name. The primary purpose of a DBA is to ensure the public is able to verify who the owner of a business is should an issue arise. 

Whether a company must file a DBA will depend on its business structure and local requirements. Business owners can register a DBA with the appropriate state, county or city agency by submitting the proper paperwork and paying a filing fee. Some states and counties also require that the DBA be published in a local newspaper to provide public notice of the new name.

DBA pros

• More branding opportunities. 
• Ability to open a business bank account. 
• Affordable setup fees.

DBA cons

• No liability protection. 
• Lack of tax incentives.
• Doesn’t offer trademark rights.

What do an LLC and DBA have in common?

Name flexibility 

LLCs and DBAs each allow businesses to create a distinct identity apart from their owners. Once an LLC is legally formed, all of its operations are conducted under the name that was registered with the state. For sole proprietorships and general partnerships, a DBA is necessary to avoid having to run the business under the owner’s personal name. 

Simple setup process 

Both LLCs and DBAs are relatively easy to register. In most states, business owners can fill out the paperwork and file for either option online. To keep an LLC in good standing, registrations must be renewed on a yearly or biannual basis in most states. DBAs are usually due for renewal after five years, but this can vary by state.

What are the key differences between an LLC and DBA?

Business structure 

Unlike an LLC, a DBA is not a type of business structure. It just gives companies the chance to use an alternate name for their operations. LLC formations establish businesses as legal entities with their own rights and responsibilities. 

Liability protection 

DBAs don’t provide a shield against personal liability on their own. Thus, despite registering a DBA for a sole proprietorship or general partnership, business owners can still be held liable for the company’s debts and legal obligations. 

This means that if someone sues the business, the owner’s personal assets may be at risk. On the other hand, since LLCs are considered separate from their owners, personal assets are protected from creditors and lawsuits. 

Tax benefits 

A registered DBA name has no bearing on the taxation of a business entity. As such, owners of sole proprietorships and general partnerships must still report the company’s income and expenses on their individual tax returns. In turn, DBAs don’t come with any tax benefits. 

However, LLCs offer tax flexibility. These businesses can choose which tax structure will benefit them the most. They’re also taxed as pass-through entities, so profits pass onto members to get reported on their personal tax returns.

Trademark security

While DBAs give businesses more options when choosing a name, it won’t keep other companies from using the same one unless the owner also files for a trademark. If multiple businesses within a market are operating under duplicate names, it can cause confusion among consumers. 

Conversely, LLC registration automatically provides trademark security, preventing all businesses in the state from having the same moniker.

Which is best for your business?

LLCs and DBAs can both give you the opportunity to operate your business under a name other than your legal one, but they work in very different manners. Before determining which is best for your business, it’s important to evaluate the various aspects of each option. This decision will significantly affect the way your company operates as a whole. 

When should you choose an LLC?

An LLC is usually the better choice for businesses in industries with a high risk of liability. This is also the case when hiring employees since having people work for a company increases its chances of being involved in legal disputes. Therefore, if you’re concerned about maintaining separation between your personal and business assets, you’ll benefit from the protection of a registered LLC. 

Forming a limited liability company is also a good idea if you want tax and management flexibility, as well as the ability to ensure no other business can take advantage of your hard work or the reputation you’ve built by using the same name. 

When should you choose a DBA? 

DBAs can be ideal for business owners who prefer a less expensive and more straightforward alternative to creating a separate legal entity. This is generally the easiest way to obtain a pseudonym for a sole proprietorship or general partnership when an entrepreneur doesn’t want to operate under their personal name. 

In some cases, it might make sense to register a DBA even if you’ve already established an LLC. Doing so can allow you to grow or rebrand your operations with new products and services. A DBA also offers a good solution for distinguishing between multiple businesses you may be operating without having to form an individual entity for each one. 

Featured LLC service offers

ZenBusiness

Learn More

Via ZenBusiness’ website

Free version available

Yes

Lowest published package price

$199

Live chat

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LegalZoom

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Via LegalZoom’s website

Free version available

Yes

Lowest published package price

$249

Live chat

Yes

Northwest Registered Agent

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Via Northwest’s website

Free version available

No

Lowest published package price

$39

Live chat

Yes

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