Business LLCs are a great way to protect your assets and business from liability. They are also relatively less expensive to set up than other business structures and can be easily managed. They are also worth it if you want to avoid a lot of paperwork and offer more protection than DBAs (Doing Business As).
However, entrepreneurs stepping into the business world for the first time might need clarification about the difference between DBA and LLC and why a limited liability company is a prudent choice. The following information can help clarify that, besides providing details on how an LLC can be beneficial to new business owners or those with little knowledge on the subject.
Personal Liability Protection
The creditor cannot go after your personal assets if you are sued for a business debt due to the liability protection it offers. In many cases, an LLC owner’s protection from personal liability is even more substantial than the corporation’s.
For example, LLC business owners are not only protected from creditors but also from lawsuits and judgments. In contrast, corporate officers and directors of corporations may be personally liable for certain acts or omissions on behalf of the company (e.g., fraud).
Limited Liability Corporations are Taxed Differently
Businesses are taxed differently depending on the entity they choose to be. As a sole proprietorship, your business is taxed at the individual level, and you report your profits and losses directly on your personal income tax return.
If you set up an LLC, your business is taxed as a pass-through entity, which means that it will be taxed through a “flow-through tax system.” This means that the expenses incurred by your company are deducted from its gross revenues before determining the annual profit or loss. Consequently, the owners can avoid double taxation, which is not often the case for corporations.
Better Protection than DBAs
Although many folks confuse the two to be the same, there is a marked difference between DBA and LLC. An LLC is a type of business with a remarkably flexible structure and an essential liability formation. In contrast, a DBA (Doing Business As) is the specific name the company uses to conduct business.
To illustrate, suppose a retail company has an LLC as The Greene Group. It can have two outlets that do business as Organic Cosmetics for Women and Jeans for Men. In essence, DBAs do not provide any liability protection but can be excellent marketing tools.
Also, by operating as a limited liability company, you get the exclusive rights to conduct business under that specific name and create a public record. If you can get a limited liability company with the same name as your business, you can forgo the DBA process entirely.
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Ayesha completed her Doctor of Philosophy in Biochemistry and started her career as a College Lecturer in 2013. Today, she’s a happy mom of 2 Kids in the field of digital marketing. She loves reading books, spending time with her family, and making delicious food for her husband.