zenbusiness

DBA vs. LLC: What’s the Difference?

by Team ZenBusiness

- November 19, 2019 7:21 pm

Understandably, a client who doesn’t know you is liable to be guarded the first time they do business with you. If you ask them to write a check to “John Doe” before you start work on their yard instead of, say, “Doe Landscaping Service,” they might be more hesitant still. (And especially if your name really is “John Doe”; what were your parents thinking?)

Two of the ways around this problem are filing a DBA or forming an LLC. But although both options may make you look more legit to your customers, it’s extremely important to know the difference between them.

A limited liability company (LLC) is a type of business that offers you liability protection to safeguard your personal assets. DBA stands for “doing business as,” and it is not a type of business at all—it’s an alias. If you’re conducting business as a sole proprietorship, you are required to use your legal name unless you file the necessary paperwork to do business under a different name; in the above example, John Doe could use a DBA to legally open a bank account under the name “Doe Landscaping Service.”

DBAs aren’t only for sole proprietorships or partnerships. They can be used by other business entities (such as LLCs and corporations) when they want to represent themselves differently. A common example would be a larger company that wants to branch out into a more specialized clientele (e.g., Doe Mega Bakery, LLC creates Doe Cupcakes to Your Door). But for now, let’s focus on the difference between starting your business as an LLC and starting off as a sole proprietorship with a DBA.

DBA icon
DBA with Sole Proprietorship
Feature icon
Feature
LLC icon
LLC
Has Liability Protection
Owner Not Liable for Employees
Low Initial Government Fee
Low Amount of Official Paperwork
Low Yearly Compliance Cost
Tax Flexibility
Happens at State Level
Gives Name Protection
Gives Credibility
Ease of Selling Business

Interested in starting your own business?

Get the services and expert support your need to form, run, and grow a successful business!


Advantages of a DBA

  • Although regulations for DBAs and LLCs vary (sometimes wildly) among states, counties, and cities, the cost of registering a DBA for your sole proprietorship is substantially less than filing for an LLC. DBA registration is usually between $10 and $200, while the filing fee for an LLC ranges from $50 to $500.
  • Similarly, there are fewer procedures and legal restrictions than there are for LLCs. The process of getting a DBA is simpler than filing to create an LLC.
  • Unlike an LLC, if you’re a sole proprietorship with a DBA, you file only one set of taxes. This doesn’t mean that you’ll pay less in taxes overall, but, because you and the business are the same entity in the eyes of the government, only one filing is needed.
  • There are fewer maintenance fees for a DBA. Depending on the state, DBAs will need to be renewed periodically (in many states, only once every five years) for a modest fee. But most states require LLCs to file an annual report and pay an associated fee, sometimes with other taxes that usually aren’t applied to a DBA.

Disadvantages of a DBA

  • The main disadvantage of having a DBA instead of an LLC is that it offers no liability protection. It’s just an alias, not a separate legal entity. That means that when someone sues your business, they’re suing you, meaning that they can go after your personal assets, including your home, savings, etc. Likewise, your business’s debts are also your personal debts.
  • Without the protection of a separate business entity, you are personally liable for the actions of your employees.
  • Operating a sole proprietorship with a DBA doesn’t give you the tax flexibility that an LLC does. 
  • In some states, DBAs are filed at the county level instead of the state level (and in some states, they must be filed with both). Consequently, you may have to file for a DBA in each county where you do business, which would multiply the filing and renewal fees.
  • DBAs are assumed names, and assumed names don’t get as much protection as legal names in many states. If you’re in one of those states, a competitor could start a business with the same name as your DBA. To protect your business name under those circumstances, you might have to seek a trademark.

Advantages of an LLC

  • Protecting your personal assets is the main advantage of having an LLC over a sole proprietorship with a DBA. The LLC’s liability and debts are the company’s, not yours personally.
  • The liability protection of an LLC also keeps the owner from being personally responsible for the actions of any employees.
  • Unlike a sole proprietorship, an LLC has options as to how it will be taxed. Some LLCs opt to be taxed as a sole proprietor, partnership, or a corporation, all depending on what option benefits that particular business most.
  • While “Doe Landscaping Service” looks better to potential customers, partners, vendors, and employees than “John Doe,” do you know what looks even better? “Doe Landscaping Service, LLC.” Those three letters at the end of the name add credibility to your business.
  • When it comes to transferring or expanding a business, an LLC is easier to work with. A DBA usually can’t be sold, and it’s easier to seek funding with an LLC.  

Disadvantages of an LLC

  • As we said, you can expect to pay more to the state for filing an LLC than you would for a DBA. Our map can show you what the filing fee is in every state.
  • Although the process of starting an LLC is less cumbersome than for a corporation, it still requires more red tape than a DBA. The same is true for ongoing compliance with the state.
  • Maintenance costs for DBAs are mostly limited to them being renewed every so many years (depending on your state) for a modest fee, but LLCs often have to pay annual filing fees and, in some states, franchise and/or entity taxes.
  • You’ll have to file two sets of taxes, one for yourself and one for the LLC, instead of just filing one for yourself as you would as a sole proprietor with a DBA. Still, this inconvenience is another way having an LLC keeps your business assets and your personal assets separate.

Other Things to Keep in Mind

  • Depending on your state, a DBA might also be called a fictitious name, trade name, assumed name, or something similar. However, there are some states that use the term “fictitious name” specifically in reference to an out-of-state business that can’t use its original legal name because that name isn’t available in the state.
  • The laws around DBAs won’t allow someone to hide their identity to avoid creditors or lawsuits.
  • If an LLC uses a DBA to do business under a different name, it doesn’t change the official name of the LLC when it was originally formed with the state.
  • A DBA can’t be used to add “Inc.” or “LLC” to a name to make it appear as if it’s a business entity type that it’s not.

Do you still have questions about different business types? Check out our blog for more information on LLCs, corporations, and S-corporations, and then chat with one of our business experts today to see how you can launch your dream business.

Create a Business Today

Get the services and expert support your need to form, run, and grow a successful business!

Start Now