Anyone who has taken an “Intro to Business” course has heard about the different types of business structures available to entrepreneurs. The two most commonly asked about are Limited Liability Company (LLC) and “Doing Business As” (DBA).
If you’re looking to start a business, it’s wise to have a basic understanding of business law and what types of protection fall under each type of entity.
To help you choose the best option for your business, let’s review what each means and compare how they differ.
What Is an LLC?
According to the U.S.’s Internal Revenue Service (IRS), an LLC is “…a business structure allowed by state statute.” This means it’s a type of business that is recognized by the state it operates within.
What Is a DBA?
A DBA is a registration, not a business structure. It allows you to conduct business under a new name (other than your own), but it doesn’t grant you protection if your business were to become audited, become involved in a lawsuit (more on that later), or if you needed to file for bankruptcy.
For both an LLC and DBA, you must file paperwork according to your city and state’s requirements—as they may differ state to state.
Difference Between DBA and LLC
The big difference between a DBA and LLC is the one (the latter) provides more protection from being held personally liable for the company’s debt (thus the name). This means that creditors generally cannot pursue an owner’s personal assets to pay business debts. This protection is not provided under a sole proprietorship or partnership.
Another key difference is, unlike an LLC, a DBA does not provide you with trademark protection. That means someone could use your name in the same city or state you reside in to sell products or services.
Should I File for a DBA or LLC?
The answer to that question will depend on several factors, including whether or not you operate as a sole proprietorship, franchise, partnership, or non-profit organization.
A sole proprietor, for instance, is “an unincorporated business owned and run by one individual with no distinction between the business and you, the owner. You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities,” (U.S. Business Administration). This is typically a preferred option for entrepreneurs who are just starting out or who will be the only employee of the business.
If you are starting out this way, you may choose to register a DBA. Just remember that this will mean your taxes and income are the same for your business as they are for your personal use.
If you’re looking to separate your personal expenses/income/assets from your business, an LLC is a much better choice. They are typically easy to form and maintain—and if you do decide to grow your business—will benefit you in the long run.
Need a Business Attorney?
Starting a business is an exciting venture, but it’s important to have legal guidance throughout the process.
At KTF Law Firm, our team has helped many small business owners in the Twin Cities set up their company for success with professional counsel and legal services.
Whether you have questions about business lending, construction law, or need assistance with contract drafting, our Minnesota attorneys will guide you on the right path so your business stays protected and in compliance with local and state ordinances.
Contact us to learn how we can help!