LLC vs DBA (What’s the Difference) - MarketWatch (2024)

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Now that you know what these acronyms mean, let’s explore how having a DBA can affect your LLC’s operation.

Taxes

Registering a DBA for your LLC will not affect your LLC’s tax flexibility. Your business can still benefit from pass-through taxation, which means the tax liability will pass through the entity itself and land on the LLC members. In other words, the LLC itself will not pay taxes, but rather the members will claim the LLC’s profits on their personal tax return and pay income tax at the individual level.

This avoids the double taxation that some corporations suffer from (i.e., the corporation pays corporate taxes and the shareholders pay income taxes on their distributions).

Liability Protection

Whether you’re operating under your LLC name or a fictitious name, you’ll enjoy the same personal liability protection. That’s because registering a DBA doesn’t change the type of business entity your company is structured as – it’s just an alternate name for your business.

Keep in mind that a DBA by itself doesn’t provide any personal liability protection. For example, an entrepreneur can register a DBA name for their sole proprietorship, but that will not limit their liability. Only corporations and LLCs are shielded from personal liability.

Trademark Protection

Filing formation documents with your state prevents other local businesses from using your LLC’s name for their own business but this won’t give you exclusive rights to use your name. If you want to have the exclusive rights to your DBA or LLC name, you’ll have to get federal trademark protection from the United States Patent and Trademark Office.

Business Identity

Both LLCs and DBAs allow businesses to operate under a name other than their legal name. An LLC can choose to conduct business using a trade name that differs from its official legal name, while a DBA allows a sole proprietorship or partnership to operate under a chosen business name that might be more marketable or descriptive.

Flexibility and Setup

Both LLCs and DBAs offer relatively straightforward setup processes compared to other business structures. Forming an LLC involves filing articles of organization with the state and adhering to specific requirements, while registering a DBA usually involves a simpler process of filing a fictitious name statement or trade name registration. This streamlined setup makes them appealing options for entrepreneurs looking to establish a distinct business identity without the complexities of some other business structures.

Both DBAs and LLCs can offer cost-effective ways to form a full-fledged corporation, making them appealing choices for small businesses and sole proprietors. However, the differences emerge when considering the long-term implications. Establishing a DBA is generally less expensive upfront, involving minimal registration fees for the fictitious business name.

Forming an LLC typically involves higher initial costs due to state filing fees and potential legal expenses. While DBAs don’t provide personal liability protection like LLCs do, their lower costs can be attractive for those seeking a simple way to operate under an assumed name. Ultimately, the choice depends on factors such as the desired level of legal protection, business objectives, and financial resources.

A DBA works as a catchy moniker for LLCs to market their business rather than using their official LLC name. Official LLC names must adhere to naming requirements such as having an indicator (e.g., ‘LLC’ or ‘Ltd. Co.’), while DBA names do not.

Maybe you want to register a DBA to make it easier for customers to remember your brand and look cleaner on billboards. For example, if you have a law firm named “XYZ Law Firm, LLC,” you may want to register a DBA like “XYZ Law.”

You can also use a DBA to separate one part of your business from another. For example, a real estate LLC named “XYZ Real Estate Group, LLC” wants to open a McDonald’s franchise location. It can register the DBA “XYZ McDonald’s” to operate and market the McDonald’s franchise.

Registering and Operating Under a DBA

Filing for a DBA filing is relatively simple. All you’ll need to do is submit the appropriate DBA registration form to the state. The registration fee will vary based on the type of business you have and which state you’re operating in. Some states require companies to publish their DBA in a newspaper, or register a DBA name with the city or county. Either way, you should check with your state’s specific laws to make sure you’re meeting all requirements.