The main difference between DBA vs LLCs is the liability protection. With a DBA, there is no distinction between the business owner and the business.
Which is better DBA vs LLC? When choosing between an LLC or a DBA, most entrepreneurs are not sure which one to go for. An LLC which stands for limited liability company is a type of business entity providing “limited responsibility” protection.
A DBA name, which stands for “doing business as” is just the registered name of a company. LLCs, partnerships, corporations, and sole proprietorships are all able to use DBA names.
Check out the guide on: Do I need a Limited Liability Company?
Is A DBA Regarded As A Business Structure?
DBAs are not business structures. For the purposes of branding, LLCs, partnerships, businesses, and sole proprietorships, can use the “DBA” name.
Some people are under the impression that a DBA indicates a formation of a business structure that has liability protection. This is a common misconception, especially when it comes to new entrepreneurs.
But the truth of the matter is that they are actually forming a “sole proprietorship” with a DBA name dedicated to banking and marketing reasons.
Should You Form A Sole Proprietorship Or An LLC With A DBA?
There are a few considerations to keep in mind before you decide between these alternatives. To find the option that best matches up to what you need, take a bit of time to speak to a professional that specializes in business filings or do a bit of research.
Options For Naming
Sole proprietorships are business structures where one person, usually called the “owner”, operates it. This individual can either be a company or a person.
Sole proprietorships are named after the individual that owns them. For example, if you are “Jane Smith” the name of your business will be Jane Smith. Any partner names will be incorporated into partnerships.
This is often inconvenient for the purposes of branding, which is the reason why partnerships and sole proprietorships are given DBAs.
What Is Personal Liability Protection
Partnerships and sole proprietorships with a DBA aren’t recognized as a formal business structure. They also don’t have personal liability protection.
This means if your business is sued, your personal assets including your savings, home, or car, might be at risk.
LLC’s, on the other hand, are formal business structures that do provide personal liability protection. This means when a company is taken to court, the personal assets of the owner are secure.
Partnerships and sole proprietorships are allowed to currently use DBA accounts for deposits or for accepting business checks that have been made out in the owner’s name (the name of the company).
However, when you have an LLC and you have a bank account opened for it, it is not necessary to have a DBA, and you can still receive checks made out to the name of the company.
Starting a company is preferable when compared to using informal business structures such as a DBA. You won’t be needing a DBA for marketing and branding since you will be using an LLC name. You will also benefit from personal responsibility protection.
Smaller business corporations can benefit from the advantages that LLCs offer. However, there are a few drawbacks to consider.
While corporations might be legal entities with both assets and liabilities, LLCs are contract agreements between people (two or more) who are interested in creating a new company under this structure.
You can also check out our guide on C corporations vs LLCs.