There are various advantages and limitations of both a limited liability corporation (LLC) and a doing business as (DBA) arrangement, and your individual needs will vary based on the type of company you have. If you have a sole proprietorship or partnership, filing a DBA may be a faster option with fewer compliances and regulations. An LLC offers added protection for your assets however, since it forms a separate entity.
When choosing whether to form an LLC or DBA, there are various things you should closely consider. For starters, forming a DBA does not form a separate business or entity for yourself. It simply gives you a legal name which you can use to do business transactions. For instance, if your name was John Smith and you started a sole proprietorship business, you would automatically have to conduct transactions using your own name. If you wanted to do business as “John's Bike Shop” you would need to file a DBA.
The DBA would not create a separate business; your income would still be filed on your personal tax returns, and the business and you would not be held separately. You would still be liable in the event of a lawsuit or another issue. This is one major factor many business owners consider when choosing whether to do an LLC or DBA, since an LLC provides some protection for business owners in regards to personal assets.
An LLC would be filed and named as a separate entity from the individual. Doing business as an LLC also prevents creditors and others from taking claim on personal property to collect a debt. If you have only a DBA and your business fails, your personal assets, such as your home or car, can be targeted for collection. If you have an LLC, only business property can be collected, while your personal assets remain safe.
When choosing whether to do an LLC or DBA, you should also consider tax benefits offered to LLC companies in some areas. It also allows more freedom in hiring employees and in having more than one owner operating the business. That said, an LLC also may have more restrictions in some areas and it may be more expensive to start initially. These added hurdles may not be necessary for those running a very small operation, such as a freelancer.
Additionally, you don't always have to choose between doing an LLC or DBA, since an LLC can also have a DBA filed along with it. You can file a business name for your limited liability corporation, but then file a separate DBA to have various names for your business. This allows you to do business under another name aside from your company name, or you can have one larger entity with various locations. For instance, if you are a restaurant owner, you can choose a DBA for each individual restaurant so that they all have a separate name.