Many entrepreneurs decide to register their company as an LLC. Once they register their LLC, many wonder, do I need a DBA for my LLC?
The short answer: No, an LLC does not require a DBA. However, there are good reasons to register a DBA with your LLC—and good reasons not to.
Let’s take a look at why an LLC might register a DBA, as well as the pros and cons of both and the tax implications of each.
Why would an LLC use a DBA?
Different business structures exist for a reason. DBA vs LLC with a DBA; LLC vs S-Corp; Corporation vs Sole Proprietorship: A business owner may choose one over the other for tax purposes, or based on how many people their company employs, or whether or not they want to be able to trade company stock on the open market. (See LegalShield’s business type comparison page for more information.)
Adding a DBA to an LLC can be a great idea from a marketing standpoint, particularly if the name of your LLC—which is Your Full Name LLC—is clumsy, generic, or confusing. You can even operate multiple DBAs under a single LLC.
The right DBA—also known as a “fictitious” or “business” or “trade” name—can elegantly communicate what your company does in a way that your name alone might not. You can modify your DBA in conformance with your industry’s advertising standards or, conversely, go against the common grain and attract customers by means of an unusual, intriguing DBA.
You’ll want to give this some good thought: The right DBA can help you stand out in a crowded industry, and can signal that you offer something your competition doesn’t.
But do you need a DBA for an LLC? Again, no. It’s just that assigning a DBA to your LLC may be a smart marketing decision. With that in mind, it’s not a bad idea to know how to create a DBA under an LLC.
Is it better to have a DBA or LLC?
There are differences between a DBA and an LLC, and pros and cons to both.
Pros of a DBA
Fees vary by state, county, and city, but filing a DBA is almost always cheaper than filing an LLC. And unlike with an LLC, there are not necessarily annual costs associated with a DBA.
Some cities require you to post a DBA notice in a local publication but doing so is inexpensive and not particularly time-consuming.
And filing your taxes on a DBA is simple: You report your DBA’s income as your personal income.
A DBA also offers a measure of privacy that an LLC doesn’t. While the name of an LLC reveals your full legal name, a DBA keeps your personal information out of the picture when discussing your company.
Cons of a DBA
A DBA on its own is simply a brand. It is neither a legal entity nor a business structure. There are a couple of consequences of that:
- You don’t own a trademark on your DBA trade name. Another business—even a local one—can operate under the same name, confusing customers, and clients.
- Whereas an LLC definitionally limits the liability you can incur, if you get sued a DBA alone won’t protect your assets.
And while filing your DBA taxes is simple, there are no meaningful tax benefits or rebates involved in doing so.
You will also need to file a DBA in each state, county, and city in which you do business. Fees can add up, and DBAs are subject to various restrictions depending on where they operate. If your DBA has little start-up capital, or if it’s roundly unsuccessful, these existence fees can cut the legs out from under your company altogether.
Pros of an LLC
The major benefit of an LLC is that it protects your assets against liability. This isn’t the case with a DBA.
Another benefit is the availability of various tax rebates. Depending on how you structure your LLC, you can file as a:
- Sole proprietor
- S corporation
Each has its own benefits.
The more money you save, the more capital you can put back into your business. An LLC offers obvious growth opportunities not clear in a standalone DBA. It’s also worth mentioning that an LLC can own another LLC.
Cons of an LLC
Fees vary by state, but filing an LLC is reliably more expensive than filing a DBA. You will incur not only an initial filing fee but an annual maintenance fee—among others. Depending on where you are, these could run into the many hundreds of dollars.
LLCs are also associated with ongoing responsibilities. You may have to regularly report detailed business information as it relates to managers, employees, and officers. And while an LLC protects your assets against liability, it isn’t protected against lawsuits altogether: You will have to be as diligent with your LLC as you would with a DBA.
Do DBA pay taxes?
Both a single-owner DBA and an LLC are considered “disregarded entities” by the IRS, meaning that the income you make from them is reported as personal income, although there are some catches there. How you file a DBA depends on its ownership structure:
- Sole proprietorship. If you are the sole proprietor of your DBA, you will report your DBA’s income on Form 1040, Schedule C. You don’t report gains and losses in income, assets, or infrastructure as assets as they relate to your DBA.
- Partnership. If you’re one of several proprietors, each member of your company’s partnership will need to fill out Form 1040 Schedule C as well as Form 1065, which details income division.
Filing taxes on a DBA is generally fairly simple, but in certain circumstances, you may want to consult a tax professional.
Whether you’re wondering, Do I need a DBA for an LLC? or Is my lawyer the best in the field? visit LegalShield for answers today. You can file a DBA online, search for representation in your area, and much more.
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