If you own a business and don't want to operate it under your own name, two popular options for establishing the company as a separate entity are to register it as “doing business as" (DBA) or a limited liability company (LLC). While both DBAs and LLCs are registered with the state and allow you to conduct business using a new name, only the LLC allows you to protect your assets from business creditors.
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What Is a DBA?
While you may be unfamiliar with the term, DBAs are actually quite common in the business world. They are sometimes referred to as trade names, fictitious names, or assumed names because they let an individual or business operate under a name that is different than their legal name.
Depending on where you live, you establish your DBA by registering it with your city, county, or state licensing agency. Additionally, most states require that you complete registration before you start operating the business under the new name. This is because DBAs protect the public by letting them look up who owns a business should they want to pursue legal actions against it.
DBA registration lets you conduct business under a different name, but it provides no other benefits for companies or their owners. A DBA does not offer any tax advantage for the business owners and does not protect owners from liability for the actions of the new business.
What Is an LLC?
An LLC is a business that has registered with the state to operate as an organization that is legally separate from its owners. As a separate entity, an LLC can own property and enters into business agreements. Additionally, the owners of an LLC are not liable for the business's debts beyond what they invested in the company.
When it comes to taxes, LLCs operate as pass-through entities. That means the company itself pays no tax and any profits or losses it has are “passed through" to the owners without the business being taxed. The owners then include the LLCs' profits or losses on their federal income tax returns. The owners of an LLC can also choose to have it taxed like a corporation, in which case its income will be subject to the federal corporate tax when earned by the company. It is then taxed again when distributed to its owners.
The primary disadvantage of operating a business as an LLC as opposed to a DBA is that you will need to follow certain business formalities to maintain its status as an entity separate from its owners. For example, LLC owners are usually required to have a registered agent, file articles of organization with the state, file annual reports, and pay annual filing fees.
Can I Create a DBA for My LLC?
If you have already formed an LLC, you can still register a DBA with the state if you do not want the company to operate under its own name. LLCs will often register new DBAs when they want to offer products or services under a separate business name without creating a new LLC for each business.
Need Help Deciding Between a DBA and an LLC?
If you don't know whether operating your business as a DBA or an LLC is best for your company, a local business attorney can help. A lawyer can assist you in determining whether a DBA or an LLC is best for both the business and its owners and in completing the paperwork necessary to file with the state. If you decide to operate the business as an LLC, an attorney can verify that you are following all of the rules and regulations to ensure that you are protected from personal liability for the company's debts and obligations.
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