If you’re going into business for yourself, one of the first and most important decisions you’ll need to make is what type of business structure to use. Many small businesses choose either a DBA (doing business as) or LLC (limited liability company).
Both have advantages and disadvantages. Which one you choose will depend on the type and size of business you’re opening, how much you’re investing, your goals for the business and what your priorities are.
What are the advantages of a DBA?
A DBA, sometimes known as a fictitious name, is typically something like “Paula Ramos DBA Lucky Pup Homemade Dog Biscuits.” In this case, Lucky Pup Homemade Dog Biscuits is the registered business name. A DBA lets you maintain some privacy since your name doesn’t have to be anywhere in the DBA name.
It’s fairly simple to open a business bank account for a DBA. A DBA isn’t a legal entity, so there’s less paperwork involved than with an LLC, and the filing process is less expensive. You also don’t have to file separate tax returns for your business.
What’s the major disadvantage of a DBA?
Perhaps the primary downside of a DBA is that the person who owns the business has full liability for it. If someone were to sue you for a defective or harmful product, because they slipped on your floor or because you failed to pay a vendor, they could come after your personal assets as well as your business assets.
Why choose an LLC instead?
An LLC might be the better choice if you do not want to risk your personal assets in a business downturn or lawsuit. That’s why it’s called a limited liability company.
An LLC also gives your business a more professional-sounding name. If you’re opening a wealth advisory firm, for example, having that LLC in the name can give it some added cache.
What’s right for you?
Typically, small, sole proprietorships are more likely to choose a DBA. It keeps the business registration process relatively simple and inexpensive. If you’re a new entrepreneur, this may be the best way to start out. However, it’s wise to learn more about the legal and financial ramifications of both DBAs and LLCs.