Does an LLC Need A DBA?

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Different business structures exist for a reason, and a business owner may choose one or another for various reasons, such as the number of people employed by the company, tax purposes, organizational structure, interstate commerce, and more. Many business owners do decide to add a DBA to their LLC, and there are pros and cons both for adding a DBA and for not doing so. If you are wondering if a DBA is the right choice for your LLC or have any other questions regarding your business structure, our New Small Business Consultation & Filing Package may be right for you. We will discuss your specific situation and help you decide what business structure is right for you and your business as well as perform all the research and help you fill out the paperwork! Learn more about this service and read on for more info about LLCs with DBAs.

DBAs - also sometimes called "tradenames" or "fictitious" names - can sometimes communicate better what your company does in a way that your regular LLC name can't. DBAs can be modified to reflect your industry advertising standards or attract new customers by using a unique name that's totally different from your competitors. From a marketing perspective, adding a DBA to an LLC can be a great idea, particularly if your LLC name is clumsy, hard-to-pronounce, hard-to-spell, generic, or confusing, and you can operate multiple DBAs under a single LLC. The right DBA can help you stand out in a crowded marketplace, perhaps even letting your potential customers know that you offer something that your competition doesn't.

But do you need a DBA for your LLC? The short answer is no, but there are good arguments both for and against adding a DBA to your LLC. There are differences between an LLC and a DBA, for instance, the fees usually vary by state, county, and city, but filing a DBA is almost always less expensive than filing for an LLC, and, while LLCs have to be renewed yearly, DBAs do not.

Some cities require you to publish a notice of DBA in the local paper, and the taxes for DBA are simpler than for an LLC, as you simply report your DBA's income as your own on your personal return. DBAs can also protect your privacy in that an LLC reveals your full, legal name, while a DBA doesn't.

Conversely, a DBA is simply a brand. It does not function as a legal entity or a business structure, and it does not protect your personal assets if your business is sued. Additionally, you don't own a trademark on your DBA name, so any business, even another local one, can operate under the same name as your business which can be confusing for customers, clients, vendors, and even the government. You will also need to file for a DBA in every state where you do business individually, and this adds to your startup costs.

If you are starting a small business, getting a DBA may be right for you if you have several areas or industries that you do business in or have multiple brands to do marketing for, but, ultimately, there are no real business or tax related reasons that make a DBA necessary. If you have more questions or still aren't sure what type of business entity you need to form for your new startup, we may be able to help! Make an appointment to talk about your new small business with our New Small Business Consultation & Filing Package!

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What's The Difference Between A DBA & an LLC?

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Choosing the type of business entity to form is one of the first things new prospective business owners must do. There are several types of business structures to choose from, and we've covered them a few times in this blog, but two of the most common ones are a DBA and an LLC. But what are the differences between them? Each structure has its pros and cons, and if you need help choosing which type of business entity to form, doing the research to make sure your business name isn't already taken, and filling out the appropriate paperwork, we have a New Business Filing Package that may be right for you.

What are LLCs and DBAs?

LLC stands for Limited Liability Company, and this type of business structure protects your personal assets and has some tax benefits. DBA stands for Doing Business As, and it is used if you are choosing to do business under a name that is not your - or your business' - legal name. For example, if your legal business name was Dave Jones Enterprises but you want to do business under the name Davey Jones' Locker, you would need a DBA.

The Pros of Setting Up an LLC

The biggest benefit of setting up an LLC is the personal liability protection, protecting your personal assets if your business is sued. LLCs are taxed as pass-through entities, which means that the profits and losses of the business are "passed through" to the owner's personal tax returns. LLCs also allow owners to run their businesses however you want, due to their flexible management structure, so your business can be centralized or decentralized depending on your needs. LLCs are also easy to set up and maintain.

The Pros of Setting Up A DBA

DBAs are even easier (and cheaper) to set up than asn LLC. DBAs can be appealing if you do business in multiple states as you don't need to fill out additional paperwork or pay extra fees.

The Cons of an LLC

Doing business in multiple states as an LLC means more paperwork and additional fees. Some states also require LLCs to have an Operating Agreement outlining ownership and the business' operating procedures. LLCs can also take longer to set up: you'll need to research your proposed business name through state databases to make sure that it is available.

The Cons of a DBA

The biggest drawback to a DBA is the lack of personal liability protection, so if your business is sued, you could be risking your personal assets. Not setting up your DBA properly can also mean that you are taxed as a sole proprietor, which means that you have pay self-employment taxes on your business earnings, paying both the typical employee share and the employer's share of taxes.

Which Is Best?

There is no clear verdict: it depends on what type of business you want to start and run. Each structure has its strengths and weaknesses and your personal and business situation will dictate which will work best for you.

If you are struggling to decide what kind of business entity to choose, we can help! With our New Business Filing Package, we'll walk you through each structure based on your specific situation and help you choose the right one for you and your new business. We'll do the legwork and research to make sure that your business name is available, fill out the paperwork you'll need to file with the Secretary of State, and help you get your federal and State Tax ID numbers, all for just $199! Learn more about our New Business Filing Package service, or sign up for our Small Business Legal Protection Plan today!

Differences Between Corporations & LLCs

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Deciding between a Corporation and an LLC often comes down to small details when a new small business owner is building a new business. Choosing the right entity for your business means taking a long look at all the considerations.

It is always best to seek the advice of an experienced small business lawyer, consultant, or accountant before you start (and our small business legal subscription plans are the perfect, in-budget solution for small business startups!), but here is a brief overview of the differences between a Corporation and an LLC.

Legal Entity VS Tax Entity

There is a difference between a Legal Entity (an LLC or Corporation) and a Tax Entity (C-Corps and S-Corps VS Sole Proprietorship/Partnership). A tax entity is how the IRS (and some state tax boards) classifies the business. The legal entity is how the courts, the state, and partners view the business. For instance, a corporation (the legal entity) gets a C-Corp or S-Corp tax designation and a tax entity; however, an LLC (the legal entity) gets to decide how it is classified: as a sole proprietorship/partnership or C-Corp for tax purposes, as there is no LLC tax entity. LLCs are then designated, for tax purposes, one of the other tax identities, typically, the tax type that has the most benefits for the business.

Speaking of Taxes...

LLCs have flexibility with their tax designation that corporations don't. A disadvantage of the corporation tax designation is the "double taxation" implication. Corporations' profits are taxed (corporate tax), and then shareholders are taxed on their dividends (individual tax). S-Corp designations allow for flow-through taxation (eliminating the corporate tax), but there are requirements to qualify for this designation, and some requirements may not be ideal for some businesses. Some businesses may have no choice except the C-Corp tax designation and accept the double taxation.

An LLC, regardless of organization and structure, chooses how it wants to be taxed. An LLC is treated like a "pass through" corporation by default (single taxation), but it can choose to be treated like a C-Corp or an S-Corp if it qualifies. While choosing double taxation may seem counter intuitive, but it does make sense in some situations, though this is rarely the case.

The taxation differences between an LLC and an S-Corp are more nuanced, as both offer pass through taxation (no double tax), but the LLC's distribution of profits are then subject to employment taxes, while an S-Corp's dividends are not. Careful planning means that some businesses can avoid the employment taxes by becoming an S-Corp. However, S-Corps require a lot more paperwork which may deter some businesses from choosing this entity type. As always, new business owners should consult with a small business professional - such as an attorney or a consultant - before making this choice for their new business.

Business Ownership

Shareholders are the owners of a corporation, while the owners of an LLC are members, and there are other differences besides just the names. LLCs can distribute their stakes in ownership regardless of the amount of capital a member has put into the business. A C-Corp can achieve the same result by creating a stock class structure while an S-Corp must have a single class of stocks with dividends distributed proportionally to the amount of capital put in by each shareholder. Creating unique classes of stocks means agreeing to the double taxation.

The management structure of an LLC is usually centralized, meaning that any member can act as a manager and the LLC can choose to have no distinction between the LLC owner and the manager. A corporation must have a Board of Directors to handle management responsibilities and corporate officers running the day-to-day operations. Shareholders are considered owners as a class, but are separated from business decisions except to approve major corporate decisions and to elect directors. Individual shareholders may be elected to be directors or appointed to be officers.

Legal Considerations

The corporation designation has been in existence for hundreds of years, meaning that, as the form has matured, the laws for corporations are virtually uniform. Centuries of case law precedent exist to resolve disputes involving corporations, and financial experts can comfortably guide a corporation knowing how the laws will work.

LLCs are relatively new. LLCs began to be recognized in the 1970s, and with characteristics of both corporations and sole proprietorships/partnerships, an LLC is a "newer" type of legal entity. These dual characteristics mean that states may have different laws and regulations in how LLCs are treated.

Though there can be some similarities to how LLCs are treated state-to-state, there are enough differences that some businesses even choose to be an LLC in one state but a corporation in another. Eventually, laws governing LLCs in the United States should become more uniform, but for now, these discrepancies can be enough to be the deciding factor when a new business owner is structuring their new enterprise.

Helping new business owners understand the legal and tax implications of their new business entity is why I started my business consulting firm. I have helped dozens of businesses through the research, documentation, and filing of forms for small businesses and look forward to helping you and your small business, too!

If you want to start getting the paperwork for your startup handled quickly, easily, and conveniently so you can focus on your business, call (208) 755-8335 or email me at debbie@debbieaferguson.com for an appointment today!