Should You Do a DBA or an LLC?

Should You Do a DBA or an LLC?

March 14, 2020

When you’re starting up a brand-new business, you’ll have a variety of options with regard to the official structure you’ll use for your fledgling company. Two of these options are DBAs and LLCs, and for new entrepreneurs, there might be some confusion concerning the differences between the two. Read on for some helpful DBA and LLC filing facts for Union City, NJ entrepreneurs.

DBA is short for “doing business as.” Such a structure allows for a business to operate under a name that is not the same as its legal name. For example, if Bill Johnson wants to start up a contracting company and operate it as 123 Construction, he would file for a DBA. This is typically done in county offices.

An LLC is a “limited liability company,” which is different in that it is its own distinct, separate legal entity from the person or people who own it. LLCs require a bit more to get started than DBAs, but have fewer restrictions than corporations. LLCs are created at the state level and must have an operating agreement when founded.

Similarities and differences

The biggest difference between these two structures, then, is that an LLC provides liability protection that a DBA does not. The DBA does not create any distinction between the business and the owner—they are one and the same, but the owner operates under an assumed identity, the business’s name. The business owner is responsible for all expenses incurred by the business. Compare this to an LLC, in which the property and responsibilities of the owner are completely separate from those of the LLC.

DBAs also do not provide any tax benefits, unlike an LLC. Under an LLC, owners can choose specific structures that offer special tax treatments, such as S-corporations.

Finally, when forming an LLC, there will typically be a requirement to file annual reports or pay annual fees to maintain the LLC. DBAs usually will just have a one-time filing fee that you do not have to renew.

There are some circumstances in which you can create a DBA for an LLC. Say, for example, Bill’s 123 Construction company was registered as “123 Construction, LLC” but he wanted to create a website “123constructionco.com.” He could file a DBA for that project and it would get the same protections afforded to him under his LLC. This type of strategy allows LLCs to diversify and broaden their options without having to keep creating new LLCs over and over again.

Given the differences between DBAs and LLCs, you might wonder why a business owner would choose a DBA rather than an LLC when first starting up. After all, an LLC provides much more protection to the business owner’s personal finances. Usually it comes down to money and ease. It’s much easier and less expensive to get set up with a DBA versus an LLC. People who are just getting their business off the ground and aren’t prepared to get as thorough with their initial setup as they’d need to be with an LLC might start out with a DBA before forming an LLC.

For more information about DBAs and LLCs and to learn some important LLC and DBA filing facts, contact Kedean’s Generation in Union City, NJ today.

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